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2018 (4) TMI 788

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..... n pages - reply of Revenue is that all the seized material are properly numbered, serialized, are genuine and that the objection put forth by the assessee is hyper technical in nature. If the copies of the seized documents supplied are in excess of the actual documents seized, as seemed to be suggested by the assessee, the assessee could easily point out the documents that don’t belong to it. This has not been done. It could be merely a case of wrong mention of numbers in the Panchanama. As long as the assessee has not pointed out any document as not being genuine, this objection is technical and has no bearing on the substantive issues raised in the appeal. We, therefore, dismiss the objections raised in this regard. Statements recorded based on the seized material AIBSG/01 and AIBSG/02 from BSG, AKG and KMG - mere reliance on a statement recorded during search action, that too of third persons, for making additions in the case of the assessee is not appropriate - Where the assessee has claimed that the statement was not based on any documents. It is also settled principle that when documents / statements are used against the assessee, copies of the same have to be provided and .....

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..... A of the Act vide order dt.14.3.2013. The details of income returned, additions made and income assessed for Assessment Years 2008-09 to 2011-12 are as under : Asst. Year Income declared u/s.153A (Rs.) Total Additions Accrued Income (Rs.) Unaccounted cash receipts (Rs.) Wrong Claim of expenditure (Rs.) 2008-09 1,68,45,707 8,35,91,047 NIL 9,54,36,754 2009-10 15,28,58,320 17,79,43,250 1,85,00,000 34,43,01,569 2010-11 28,64,99,700 8,70,54,416 2,67,71,921 39,03,26,041 2011-12 42,16,56,730 9,58,64,287 NIL 50,75,21,020 2.2 Aggrieved by the orders of assessment for Assessment Years 2008- 09 to 2011-12 containing the above additions made by the Assessing Officer, the assessee filed appeals before .....

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..... e, the authorities below erred in relying on the material A/BSG/01 A/BSG/02 without clarifying the questions raised on the said seized material. 16. The authorities below erred in relying on statements recorded from Mr. Bharat S Ghorpade, Mr. Dinesh Kumar Singhi, Mr.Kartikeya M Ghorpade, Mr. K.V. Balan and Mr. Antony Balraj. 17. The authorities below erred in relying on statements supra in Ground No.16 without providing opportunity to cross examine. 18. That the approval granted u/s153D is not as per law. 19. The appellant denies the liabilities of interest u/s 234B 234C of the Act. Further prays that the interest if any should be levied only on returned income. 20. No opportunity has been given before levy of interest u/s 234B and 234C of the Act. Without prejudice to the appellant s right of seeking waiver before appropriate authority, the appellant begs for consequential relief in the levy of interest u/s 234B and 234C of the Act. 21. For the above and other grounds and reasons which may be submitted during the course of hearing of the appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered. 3.2 Simi .....

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..... ), Ambika K Ghorpade (in short AKG ) and Dinesh Kumar Singhi (in short DKS ). On an analysis of the above referred seized material, the Assessing Officer made the following additions : Asst. Year Total unaccounted cash sales Receipts (Rs.) Undisclosed income of KMIORE (Rs.) Undisclosed income of AKG (Rs.) 2008-09 16,71,82,094 8,35,91,047 8,35,91,047 2009-10 19,06,35,900 17,79,43,250 1,26,92,650 2010-11 15,27,27,045 8,70,54,416 6,56,72,629 2011-12 12,95,46,334 9,58,64,287 3,36,82,047 Total : 64,00,91,373 44,44,53,000 19,56,38,373 5.2 The Assessing Officer s case, based on an appraisal of the seized documents, is that it has transpired that the assessee along with Smt. Ambika Ghorpade had extracted iron ore both with and without permit and had received su .....

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..... Company. For the above assessment year 2008-09, the assessee filed its return of income on 28.09.2008 declaring Total Income of ₹ 1,18,45,710/-. The search and seizure operation purportedly u/s 132 of the Income Tax Act, 1961 was carried on in pursuance of warrant of authorization dt. 27.09.2010 in the case of M/s Kartikeyas Manganese and Iron Ores Private Limited at Kartikeya Niwas, Krutika Farm Sandur. The premises at Gaurihara, Gandhi Colony, Hospet, was also searched purportedly u/s 132 of the Act and certain materials were seized. The said premise does not belong to the assessee but belongs to Mr. S.Y. Ghorpade. The warrant of authorization in this search was also not shown to the assessee or its representatives. It was shown to one Mr. S.Y.Ghorpade to whom the said premises belonged to. The seizure of documents marked A/BSG/01 and A/BSG/02 were made in the hands of S.Y. Ghorpade and Bharath S Ghorpade. The said material did not belong to the assessee. During the course of search at Bangalore premises at Mantri Elite, C-1102, Bannerghatta Road, Bangalore, a statement was recorded from Mr. Karthikeya M Ghorpade in the wee hours of the day. The assessee had lot of apprehe .....

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..... for the AO to make such addition. The objections filed by the assessee have been summarily dismissed without meaningfully going through the same. The AO has relied on hear say and uncorroborated evidences in preference to facts and relevant evidence. The material in the form of A/BSG/01 and A/BSG/02 did not pertain to the assessee and the entries are totally in variance with the books maintained. Not even the rudimentary evidence that the assessee has received cash in excess of what is recorded in the books has been led by the AO. The detailed explanation given by the assessee has been ignored. Thus the addition is based on wholly inconsistent and unsustainable conclusions. There is neither any asset commensurate to the alleged cash receipts nor is actual cash available with the assessee. In the absence of any such asset or valuable, it would be wholly inconsistent to make the above additions. In this regard, the assessee relies on the decision in Nirmal Fashions (P) Ltd vs DCIT - 123 TTJ 180 - Kolkata ITAT (CLPB page 306/317) wherein the tribunal has held as under: As per the presumption of the AO, the assessee is carrying on the business of purchase and sale of saree .....

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..... ree with the opinion of the Tribunal that additions could not have been made by the Assessing officer without rejecting the books of accounts of the assessee, and also without there being any adverse comment made by the Assessing officer with regard to the books of account that were maintained by the assessee, which were duly audited. 6. In our view, if assessment is allowed to be reopened on the basis of search, in which no incriminating material had been found, and merely on the basis of further investigating the books of accounts which had been already submitted by the assessee and accepted by the Assessing officer at the time of regular assessment, the same would amount to the Revenue getting a second opportunity to reopen the concluded assessment which is not permissible under the law. Thus, non adherence to the provisions of section 145(3) of the Act, renders the additions unsustainable. Based solely on the seized material A/BSG/01 A/BSG/02 the income in the form of alleged cash sales has been calculated at page 53 of the assessment order extracted as under: Total cash receipts as per seized materials From the above discussion, it is clear .....

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..... aterial not seized from the assessee and does not belong to the assessee. When seized it was in the possession of Bharat S Ghorpade in the residence of SY Ghorpade. When the objection was taken on this issue the AO has already held that the said material belonged to Bharat S Ghorpade vide issue of notice u/s 153C in his hands (PB page 206). Having held that the material belongs to Bharat S Ghorpade, the same cannot be the basis for addition in the hands of any other assessee other than Bharat S Ghorpade. Even if the name of the assessee is found in the seized material still the same cannot be used in the case of the assessee as held in the following caselaws: 1) Vijaybhai N. Chandrani vs. ACIT - 333 ITR 436 - Guj HC (CLPB page 430/431) 2) Hon ble Bangalore ITAT in Senate vs. DCIT - 181 TTJ 562 (CLPB page 436/446), 3) P.Srinivas Naik vs ACIT - 114 TTJ 856 - ITAT Bangalore (CLPB page 133/136) 4) PCIT vs Vinita Chaurasia - 394 ITR 758 - DEL HC (CLPB page 80/91) Since the department itself has held the material belongs to Bharat S Ghorpade no addition could be made in the hands of the assessee. Secondly the seized material A/BSG/01 A/BSG/02 seized .....

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..... able at page 218 of the Paper book (PB) warrant being drawn in the case of the assessee to search the residential premises of S.Y.Ghorpade/Bharat S Ghorpade at Gaurihara, Gandhi Colony, Hospet. The said premises does not belong to the assessee but to SY Ghorpade, father of Bharat S Ghorpade. The search commenced on 28.09.2010 at 9.30 am and the proceedings were closed on 29.09.2010 at 7.45 am. During the course of search proceedings a statement u/s 132(4) of the Act was recorded of Bharat S Ghorpade commencing at 11.30pm on 28.09.2010 questioning him on the exhibit marked A/BSG/01 A/BSG/02. The oath statement is signed by Bharat S Ghorpade at early hours on 29.09.2010 (page 377 of PB). Page 220 PB contains the list of inventory of books of accounts, documents etc found and seized during the search at Hospet supra. The inventory seized marked as A/BSG/01 contains folder of loose sheets (total pages 72 written pages 72) A/BSG/02 contains folder of loose sheets (total pages 150 written pages 150). The search was also conducted in the case of Ambika Ghorpade at C-1102, Mantri Elite Apartments, Bannerghatta Road, Bangalore (page 422 PB). The search commenced on 28.09.201 .....

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..... nsactions of KIMORE Pvt., Ltd., and Karthikeyas Manganese Iron Ore Mine with Bharath Mines Minerals Ltd and also other parties. It contains details of supply of iron ore with permits and without permits to these parties and payments received against the same by both cheque and cash. Q 05 I am showing you exhibit marked A/BSG/02 dated 28.09.2010 which contains a bunch of loose sheets serially numbered from 01 to 150. Please go through the exhibit, identify the handwriting and explain the contents? Ans I have gone through the exhibit marked A/BSG/02 dated 28.09.2010 which contains a bunch of loose sheets serially numbered from 01 to 150. These loose sheets written by me were kept by me in my father s residence at the address mentioned above. The jottings pertains to the business transactions of KIMORE Pvt., Ltd., and Karthikeyas Manganese Iron Ore Mine with Bharath Mines Minerals Ltd and also other parties. It contains details of supply of iron ore with permits and without permits to these parties and payments received against the same by both cheque and cash. The above indicates that the alleged seized material A/BSG/01 A/BSG/02 were at Hospet which is .....

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..... in PB page 441, perusal of the same does not indicate any confirmation of transactions as mentioned in A/BSG/01 A/BSG/02. Without prejudice, even Bharat S Ghorpade in answer to question no.4 extracted supra says that the transactions in A/BSG/01 A/BSG/02 is not only with the assessee and Bharat Mines and Minerals but also with other parties. Who the other parties are nor the extent of transaction with them has not been investigated. The AO has ignored this vital aspect. All these objections have not been considered by the AO and he has placed immense faith in the seized material as a gospel of truth and has not conducted any investigation to bring any corroboration. The only corroboration he mentions is in para 9.2 page 27 of the assessment order (running page 55). The mention by the AO that the cheque transaction in seized material tallies with the accounted transaction in the books of accounts of the assessee is again factually incorrect. The assessee has filed the copy of the ledger extracts indicating the bank transactions and also comparative statement between the seized material and the books of accounts (PB page 456 to 470) clearly indicating that the transac .....

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..... 77; 1,85,00,000/- for AY 2009-10 and ₹ 2,67,71,921/- for AY 2010-11 stating that the assessee has raised certain bogus claim for expenditure and disallowed the same. In doing so he has relied on the statements of Mr.K.V.Balan and Mr.Antony Balaraj. It is submitted that all the expenses are duly recorded in the books of accounts and the payments have been made through the regular banking channels. The seized material A/KMIORE/S/5 referred by the AO is not incriminating as the expenses referred therein and the TDS calculation is part of the books of accounts. No expenses can be disallowed merely on the basis of statement of third parties. The copies of the statements were not given to the assessee. No opportunity for cross examination has been provided to the assessee and in the absence of the same statements cannot be relied on. In addition to the above, the assessee relies on the following case laws: On the issue of assessment made based on third party statements: PCIT vs Saumya Construction P Ltd - 387 ITR 529 - GUJ HC CIT vs SMC Share Brokers Ltd - 288 ITR 345 - Delhi HC On the issue that addition cannot be made on estimate basis, guess work an .....

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..... from these mines. ii. As per the business arrangement Mrs.Snehalatha Singi would undertake extraction and processing the iron ore into lumps and fines, handover to the mine owners who in turn supplied processed iron ore to Bharat Mines and Minerals. iii. The mine owners are just leaseholders and entire set of activities is carried out by Mr Dinesh, Singhi of BMM though ore raising and processing contract is in the name of Mrs Snehalatha Singhi. Mine owners sell the processed iron ore only to BMM. During the course of search several documents relating to business activities were found and seized in the premises of Sri Bharat S Ghorpade, person in charge of affairs of the assessee mining business) marked as A/BSG/01 and A/BSG/02. iv. Show cause notice was issued and served on the assessee by making the seized documents as part of the show cause notice. The statements relevant of Mr Bharat S Ghorpade was also made as part of the show cause notice. The show cause notice is extracted in the assessment order at page 3 to 16 of the assessment order. The assessee in reply dated 15/11/2012 acknowledged the receipt of seized material marked as A/BSG/01 and A/BSG/02. All the .....

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..... eration received by cheque from BMM/BMM Ispat Ltd are accounted in the books of accounts of the assessee but the cash component is not accounted. This has been confirmed from books of accounts and the statements recorded from Mr Bharat S Ghorpade and Mr Kartikeya Ghorpade. (Tabulation at page 27 and 28 of the assessment order). b. Mr Bharat S Ghorpade admitted that entries in the seized material A/BSG/01 and A/BSG/02 written by him and sales of iron ore to Sri Mr Dinesh Kumar sINGHI of Bharat Mines and Minerals. Further admitted the sale of iron ore with permits and also without permits and the receipt of amounts being sale consideration received by way of cheques and cash. Relevant portion of the statements of Mr Bharat S Ghorpade are extracted at page 29 to 37 of assessment order. c. Mrs Ambika Ghorpade was questioned and she stated that entire business activities are undertaken by husband and he only explain the seized materials. d. Mr Dinesh Kumar Singhi accepted the payment of cash of ₹ 1.40 crores in respect of billing done in April 2010 reflected in seized material. e. Page 25 and 26 of the seized material marked as A/KMIORE/S/06 seized from the .....

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..... ity of iron ore weighing 185600 MT was sold during the period February 2008 to June 2008. As per page 29 the total payment received or permitted quantity of iron ore was ₹ 24,12,81,600/ which includes cash portion sale consideration of ₹ 7,62,81,600/ . On detailed examination of the seized material it was found that sale consideration has been divided into two components with the different rates towards cheque and cash. h. Page 30 of the seized material A/BSG/01 reflects aggrieved prize at ₹ 1300/ per MT. This was further divided into two parts for permitted quantity at ₹ 889/- per MT for cheque and ₹ 411/ per MTS for cash component the Page further contains details of cash received on sale of 119926.08 MT of iron ore without permits during the period February 2008 to June 2008 and cash receipt for without permit quantity was ₹ 15,59,03,904/ . The total cash sales for the period February 2008 to June 2008 works out to ₹ 23,21,85,504/ . The Page further contains cash receipts of ₹ 8,86,98,500/ towards sale of iron ore without permits during month of July 2008 and August 2008 and the quantity of iron ore is 57041 MT (50767 Mt .....

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..... e employees of the company. n. Similar entries were found for the Assessment Year 2010 11 in the notebook maintained by the assessee and same is scanned at page 57 of the assessment order reflecting generation of bills in the names of spouses of the employees by the assessee. The statement of employees (accountant) is extracted at page 59 and 60 admitting the contractors are either the employees of the company or the spouses or relatives. Further admitted generation of bills in the office of the assessee (relevant portion of statement at page 61 and 62 of the assessment order). An analysis it is found the contract work is only accommodation entries to avoid payment of tax. 3. The same has been appreciated in proper prospective by the Appellate Commissioner and upheld the same. 4. Reply to assessee submission. a. The contention of the assessee that addition of ₹ 7,85,91,047/ towards cash sales and cash receipt is without evidence is incorrect . The seized material marked as A/BSG/01 and A/BSG/02 clearly reflected the sale of iron ore with and without permits, cheque component and cash component. The sale of iron ore with permits and the consideratio .....

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..... pagination of the seized material is hyper technical, afterthought and baseless. It is an attempt made by the assessee to deviate from the main issue. When the same material was provided to the assessee the same has been admitted and this is an attempt to overcome the admission made on oath. The entire set of seized material has been placed before this Hon ble Tribunal and the authenticity can be examined. Each and every page of the document has been authenticated by Mr Bharat S Ghorpade by affising signature and date, from whose possession the same has been seized. In such a situation, the assessee is not correct in questioning the authenticity of the seized material that too in a situation where majority of the entries tallied with the books of accounts maintained by the assessee. g. Another illogical contention raised by the assessee with respect to the possibility of confronting the same seized material to Mr Bharat Ghorpade and Mr Kartikeya Ghorpade s immaterial and irrelevant. What is relevant is whether the material found and seized has been confronted and the same aspect is not under dispute. In view of the present technology, the contention of the assessee is illogic .....

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..... it was categorically mentioned that no cash sales transactions were done. Even after issue of notice under Section 153A of the Act, objections were raised that the said seized material did not belong to the assessee M/s. KMIORE or Ambika Ghorpade and a reply vide letter dt.30.3.2012 (copy placed at pages 17 18) was filed while complying with the notice under Section 153A of the Act. The relevant portion thereof is as under :- It is further clarified that the premises at Gaurihara, Gandhi Colony, Hospet does not belong to Kartikeya Manganese and Iron Ore Pvt. Ltd. It is the residential premises of Mr. S.Y. Ghorpade. The material seized at the premises does not belong to the assessee. 7.1.2 The Assessing Officer considered the objections of the assessee and held that the material seized from Ambika Ghorpade and the assessee M/s. KMIORE belongs to Bharat S. Ghorpade and thereafter also issued a notice, under Section 153A r.w.s. 153C of the Act to BSG for Assessment Years 2005-06 to 2010-11. In this background, it is the contention of the assessee that since the seized material, more specifically AIBSG/01 and AIBSG/02 did not belong to the assessee or Ambika Ghorpade .....

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..... eized material. The judicial pronouncements cited by the assessee and extracted above spells out the legal position that unless the material belongs to the assessee, the same cannot be used or held against the assessee in proceedings under Section 153A or 153C of the Act. Thus the additions made by the Assessing Officer based on seized material AIBSG/01 is unsustainable for this reason. 8.1 The second objection of the assessee is that the seized material AIBSG/01 as per the panchanama contained 72 total pages and 72 written pages whereas the copies supplied to the assessee contained 90 written pages. The assessee has been seeking clarification as to how excess pages, other than that mentioned in the seized material were made available to it. Similarly in the case of seized material in AIBSG/02 wherein as per the Panchanama the total pages were 150 and written pages were 150, the written pages supplied to the assessee were 182. Thus, in both the aforesaid seized material, the copies thereof given to the assessee appears to be in excess of the seized material. 8.2 In response to the above objections raised by the assessee, the ld. standing counsel has submitted as under in para .....

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..... .09.2010 at 7.45 am. During the course of search proceedings a statement u/s 132(4) of the Act was recorded of Bharat S Ghorpade commencing at 11.30pm on 28.09.2010 questioning him on the exhibit marked A/BSG/01 A/BSG/02. The oath statement is signed by Bharat S Ghorpade at early hours on 29.09.2010 (page 377 of PB). Page 220 PB contains the list of inventory of books of accounts, documents etc found and seized during the search at Hospet supra. The inventory seized marked as A/BSG/01 contains folder of loose sheets (total pages 72 written pages 72) A/BSG/02 contains folder of loose sheets (total pages 150 written pages 150). The search was also conducted in the case of Ambika Ghorpade at C-1102, Mantri Elite Apartments, Bannerghatta Road, Bangalore (page 422 PB). The search commenced on 28.09.2010 at 9.30am and the proceedings closed on 29.09.2010 at 8.45am. During the search proceedings the statement on oath of Kartikeya M Ghorpade (husband of AmbikaGhorpade and Managing Director of KMIORE) was recorded on oath questioning him on certain pages of the seized material marked as A/BSG/01 A/BSG/02 (page 408PB). The statement u/s 132(4) was also recorded of AmbikaGhorp .....

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..... in this regard, perused the statements recorded during the search action and also the correspondence entered into by the assessee with the Department after the search action. The undisputed facts are that Kartikeya M Ghorpade and Ambika Ghorpade had admitted to earning of certain undisclosed income during the course of search action. That the disclosure / admissions made by them was based on certain documents purportedly shown to them also comes out clearly from the statements. In contentions put forth, the assessee has cast serious doubts as to whether the disclosure was made based on documents purportedly shown to these two persons KMG and AKG by elaborately citing the time of search, the time of recording the statements and alleging the impossibility of showing documents which were in another premises which was far away. 9.3.2 Be that as it may, it is settled principle that the assessment of income has to be based on evidence. The statement recorded during search action can be relied upon provided it is supported by evidence collected during search action, However, mere reliance on a statement recorded during search action, that too of third persons, for making additions .....

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..... e jurisdictional High Court in CIT vs. Dhingra Metal Works (supra). Therefore, the orders of the lower authorities are bad in law and are set aside on this issue. These grounds are allowed. CIT v. S. Khader Khan Son [2012] 254 CTR 228; . In the light of the above, the objection raised by the assessee is upheld. 10.1 The next objection of the assessee is that the material AIBSG/01 and AIBSG/02 are a bunch of loose sheets and cannot be relied upon. It is the assessee's contention that loose sheets are not evidence because they are neither books of account nor are they maintained regularly and therefore in the absence of adherence to the twin requirements of Sec. 34 of the Evidence Act, no liability under law can be brought about based upon the loose sheets and therefore they cannot be relied upon for framing of assessments. In support of the above contentions, the assessee had placed reliance on some judicial pronouncements. 10.2.1 We have considered the submissions and contentions put forth in this regard and perused and carefully considered the material on record. We have already held that the action of the Assessing Officer is making additions based on seized mate .....

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..... rred to is on page 15 of the seized material AIKMOREIS/5, both of which are mentioned at pages 55 57 of the order of assessment. On this issue the addition made in the hands of the assessee and AKG are as under :- Asst. Year M/s. KMIORE (Rs.) AKG (Rs.) 2009-10 1,85,00,000 28,96,125 2010-11 2,67,71,921 78,57,020 11.2 The assessee's contentions as submitted in their written submissions are as under : The AO has made addition of Rs. ₹ 1,85,00,000/- for AY 2009-10 and ₹ 2,67,71,921/- for AY 2010-11 stating that the assessee has raised certain bogus claim for expenditure and disallowed the same. In doing so he has relied on the statements of Mr.K.V.Balan and Mr.Antony Balaraj. It is submitted that all the expenses are duly recorded in the books of accounts and the payments have been made through the regular banking channels. The seized material A/KMIORE/S/5 referred by the AO is not incriminating as the expenses referred therein and the TDS calculation is part of the books of acc .....

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..... on the material seized from BSG mentioned at page 55 of the order of assessment. A perusal of the same shows that certain sums are mentioned against various names and when this is compared with the seized material AIKMIOREIS/5 mentioned in page 57 of the order of assessment, the same do not match; as the amounts mentioned and names of parties are different. Seized material AIKMLOREIS/5 gives details of gross amounts and TDS and do not match with the material found with BSG and as mentioned earlier, a comparison of the two does not match and therefore does not bring out any clarity or corroborate each other or evidence any withdrawal of cash or that anything is amiss as alleged. Further, in his statement Bharat S Ghorpade (BSG) states that he does not know anything about this. Similarly, Sri Balan was not able to explain on account of lack of knowledge since he was not in charge of administration. Sri Antony Balaraj has stated that he has not carried out any contract work on behalf of the assessee company and the assessee has also pointed out certain discrepancies / contradictions in his statements. 11.4.2 These could have been clarified / confronted to the assessee, by the As .....

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