9911796707
TMI Blog2017 (2) TMI 1553X X X X Extracts X X X X X X X X Extracts X X X X ..... 013 passed U/s 144 read with Section 153A of Income Tax Act, 1961 as time barred, without jurisdiction, void ab-initio and bad in law. 2. On the facts and in the circumstances of the case and in law the ld CIT (A) erred in rejecting contention of the assessee that the reference to special audit report under Section 142(2A) of Income Tax Act is purely based on the recommendation in appraisal report. The AO has not applied his mind with regard to the nature and complexity of the accounts of the assessee. It is contended that the AO's opinion cannot be substituted by another officer's opinion. Thus, the ld CIT (A) erred in not declaring the reference to special audit report under Section 142(2A) of Income Tax Act is bad in law and invalid and assessment order dated 14.11.2013 passed U/s 144 read with Section 153A of Income Tax Act, 1961 as bad in law and void ab-inito. 3. On the facts and in the circumstances of the case and in law the ld CIT (A) erred in rejecting contention of the assessee that the assessment order passed U/s 144 r.w.s. 153A of the Income Tax Act, 1961 is void ab-initio and bad in law and deserves to be annulled as the special auditors have computed the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven in special audit report which has also been held valid. 2. Whether on the facts and the circumstances of the case the ld CIT (A) was right in restricting the disallowance from Rs. 6,83,29,329/- to Rs. 3,35,092/- made U/s 40A(3) of the Act without appreciating the fact that this violation of the provision of the Section 40A(3) of the Act has been mentioned in the special audit report. 3. Whether on the facts and the circumstances of the case the ld CIT (A) was right in restricting the disallowance from Rs. 6,99,228/- to Rs. 4,81,614/- made U/s 40(a)(ia) of the Act without appreciating the fact that this violation of the provision of the Section 40(a)(ia) of the Act has been clearly mentioned in the special audit report. 4. "Whether on the facts and the circumstances of the case the ld CIT (A) was right in deleting the addition of Rs. 70,00,000/- made on account of bogus share capital introduced without appreciating the fact that during the course of assessment proceedings despite various opportunities of being heard granted to the assessee, the assessee has failed to prove the genuineness of the transaction and identity and creditworthiness of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5-286 289-296, 302-313, 319-324, 325-328, 329-331, 332- 334, 335, 336-338, and 339-343). During the course of search certain documents were found and seized relating to the assessee including a CPU containing the books of accounts named as "Jadavji" being duplicate/parallel books of accounts of the assessee company maintained in the form of memoirs, containing the entries of recorded and unrecorded transactions of the assessee company. However the books of accounts named as "Jadavji" were neither complete nor correct. During the course of assessment proceedings it was opined by AO that the entries in the books of accounts named as "Jadavji" were extremely complex in nature therefore the AO moved a proposal to ld CIT, Central, Jaipur vide letter dated 13.03.2013 for approval of special audit of accounts of the assessee u/s 142(2A) of Income Tax Act, 1961. In response to the proposal of AO, the ld CIT (Central), Jaipur issued a show cause notice dated 15.03.2013 (Copy at PB Page 176-177) to the assessee for approval of special audit and in response to the show cause notice, the assessee objected the reference of special audit u/s 142(2A) of Income Tax Act, 1961 vide its letter dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port. The assessee filed rejoinder on the remand report of the AO. The ld CIT (A) partly allowed the appeal by deleting/sustaining the additions as under:- S. No. Particulars Additions Made by AO in dispute before CIT (A) Amount (Rs.) Deleted by CIT (A) Amount (Rs.) Sustained by CIT (A) Amount (Rs.) 1. Trading addition 53097994 27141136 25956858 2. Disallowance u/s 40A(3) of Income Tax Act, 1961. 68329399 67994307 335092 3. Disallowance u/s 40 (a) (ia) of Income Tax Act, 1961 699228 217614 481614 4. Addition u/s 68 of Income Tax Act, 1961 on account of alleged bogus share capital introduced through Kolkata based companies 7000000 7000000 0 5. Disallowance of expenses naming bill premium 5516 5516 0 6. Disallowance 15% of total expenses of Rs. 11,08,906/- (After reducing Rs. 54,57,098/- already disallowed u/s 40(A)(3), 40(a)(ia) etc.) found recorded in the books of accounts named as "Jadavji" 166336 166336 0 Total Addition 129351691 102524909 26773564 Further, ld CIT (A) directed that the seized cash lying in PD account be adjusted against self assessment tax liability and interest u/s 234B be computed accordingly. 4.1 Now we take up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration. 5.3 On the other hand, the ld. DR relied on the order of the lower authorities. 5.4 We have heard the rival contentions and perused the materials available on record. It is noted from the order of the ld. CIT (A) that assessee has not brought any positive material to show that the approval given by ld. CIT (Central, Jaipur is without application of mind and the ld. CIT (A) also noted that the opinion of the AO that the accounts of the assessee are complex and based on objective consideration. Therefore, the ld. CIT (A) rejected the contentions of the assessee are rejected and dismissed both the ground Nos 1 and 2 of the assessee. Looking into the present facts and circumstances of the case, we concur with the order of the ld. CIT (A) on this issue. Thus Ground No. 1 and 2 of the assessee are dismissed. 6.1 The Ground No. 3 to 7 of the assessee's appeal are in respect of confirming the addition of Rs. 2,59,56,858/- by estimating the profit rate @ 24% on estimated sales of Rs. 26. crores by the ld. CIT(A). 6.2 The Ground No. 1 of the departmental appeal is in respect of restricting the trading addition of Rs. 5,30,97,994/- to Rs. 2,59,56,858/-. 6.3 In these g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ept the jewellery business. Therefore, considering the facts and circumstances of the case as discussed, I hold that the assessee has declared this income of Rs. 2,46,00,000/- on account of profit from unaccounted purchase and sales which was utilized in unaccounted asset. After considering the above facts and circumstances , the addition of Rs. 5,05,56,858/- - Rs. 2,46,00,000 = Rs. 2,59,56,858/- is sustained as against trading addition of Rs. 5,09,67,486+Rs. 21,30,508/- totaling to Rs. 5,30,97,994/- made by the AO. Thus the assessee gets relief of Rs. 2,71,41,136/-.'' 6.4 During the course of hearing, the ld. AR of the assessee prayed that the ld. CIT (A) erred in confirming the trading addition of Rs. 2,59,56,858/- by estimating GP rate @ 24% on the estimated sales of Rs. 26.00 crores out of the trading addition of Rs. 5,30,97,994/- made by AO. The ld. AR of the assessee filed the following written submission which has been taken into consideration. "At the outset, we submit that ld CIT (A) has held the reference of special audit as valid. Ld CIT (A) has categorically mentioned that there exist defects in recasting of the books of account by special auditors. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... task to Special Auditors to compute the income or recast the Trading and P & L A/c by applying the presumption and assumption or on estimation. There was no scope of application of presumption, assumption, estimation, personal judgment etc in recasting of accounts. Further the auditor is not a quasi judicial authority and estimation and presumption is beyond the scope of audit. Further, the auditor reported the bogus purchases merely on assumption more so when the full particulars of purchases along with quantity is recorded in the seized documents. In no 1 book, there may be bogus purchase but no 2 books are always presumed to be true and correct and bogus purchases cannot be entered in no 2 books particularly when the quantitative details and description of purchase is recorded in seized books. The amount mentioned against head "Bill Premium" is not sufficient to believe that the purchases are bogus particularly when the assessee explains that the bill premium is against the extra amount charges by the supplier against the issue of bill against the purchases. Whether the particular purchase is bogus or not is to be determined by AO after conducting proper inquires. Further, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e incomplete, incorrect, arbitrary, based on presumption and assumption and also not prepared on the basis of accounting principles and without considering the seized documents properly. Further the assessee has made detailed submission before the lower authorities showing that the figures of purchases, expenses and sales have been determined by the special auditors in recasted accounts are at wrong figure. They made certain wrong adjustment or certain adjustments left to be made. The addition of Rs. 5,09,67,486/- made by the ld AO was based on the defective recasted accounts. Furthermore, the auditors have pointed out in common remarks that true and correct profit cannot be computed due to inherent shortcoming in the seized records/ method of recording entries in Jadavji. The common remarks of the special auditors are as under:- i. In para 3.3 at Page 2 of common notes annexed with special audit report (Copy at Page 27-28_of SAR PB Vol 4) it has been mentioned that ".........it emerges that by applying the standard auditing procedure, neither the statement of affairs nor profit or loss as desired can be determined". This proves that the way by which the books of accounts namin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the true and correct profit from the books of accounts named as "Jadav Ji" cannot be deduced. Furthermore, the ld AO himself has estimated the profit by applying GP rate of 26.21% on consolidated sales determined by the special auditors in recasted accounts. The ld AO determined the consolidated sales at Rs. 26,96,46,926/- and applied the GP rate of 26.21% to estimate the profit. In this way, he estimated the overall profit of the assessee at Rs. 7,06,74,459/-. Since the profit computed by the Special Auditors was Rs. 6,85,43,951/- so he made further addition of Rs. 21,30,508/-. This action of the AO shows that he himself does not believe that recasted accounts by the auditors are true and correct. The AO himself held indirectly that the true profit cannot be deduced from the recasted account otherwise there was no need to estimate the profit by applying GP rate on the consolidated sales determined by the special auditors in recasted accounts. First of all we submit that when the estimation is made, the best method of estimation should be applied. The assessment order of the assessee was framed u/s 144 i.e. best judgment assessment. It means that the AO should consider all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P. There is substantial change in the circumstances in AY 2010-11 from AY 2009-10. In AY 2010-11 the sales of the assessee has substantially increased which could be possible only by lowering down the GP rate. Furthermore, in market, there are many other dealers/parties which are doing same business and the GP of the assessee can be compared with the other comparable cases. e) As regard to GP of AY 2010-11 worked out on the basis of trading account re-casted by special auditor this is to submit that in view of our previous submission the trading account is prepared on the basis of incomplete books of accounts in which the proper impact of all the purchases and common sales was not given, therefore this trading a/c do not show the real picture of trading affairs of the assessee. On the first instance after resuming the assessment proceedings after completion of special audit and submitting the special audit report to ld. AO the ld. AO issued a show cause notice to the assessee vide notice dated 03.10.2013 (Copy at PB Page 300) wherein estimation of gross profit by applying the GP rate of 15% was suggested by the AO. Thereafter the ld. AO suddenly changed his mind and applied t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion here that the assessee citing some more instances showing much lesser GP, which the special auditors have not considered.: - S. No. Product code Purchases amount Date of sales Sold to Sales value GP 1 Market Item 2pscs K20788/Krng00098/ (R0000094) & K20783/Ktop00008 (R0000098) & Nosepin 1pc K1165/Jnp112 72,935 20.02.10 Namrata Rajpurphit 80,100 7,165 2 Market Item 1pc R000036/Klkt00023 1,58,056 13.10.09 Radha Akar 1,75,000 16,944 3 Market Item 2pcs K20791/Kbng00080 And K20800/Klkt00004 2,10,977 02.02.10 Vijay Singh Ji 1,50,000 (-) 60,977 4 R00000123/KMNG00 015 50,586 11.01.10 Smita Sharma 50,000 (-) 586 5 K20751/Kmng00022 Ring 1pc K1607/Jr818 Earring K2330/Je887 72,892 03.02.10 K.C. Swami 80,000 7,108 Total 5,65,446 5,35,100 (-) 30,346 On above transaction the GP of the assessee comes (-) 5.67%. This proves that merely on the basis of some instances of some particular products and for some particular days the overall GP of the assessee cannot be estimate. ii) In the given sample all the transactions are of trading goods of diamonds while the assessee has also sales of Kundan Meena jewelry for substantial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed. iv) While applying the GP rate of 26.21% ld. AO/24% by ld CIT(A), lower authorities have not cited any comparable case of the trader of same trade. In this regard we have submitted comparable case of M/s Rambhajo's (PAN: - AAJFR4553Q) who was assessed at Central Cirlce-1, Jaipur. This concern is also engaged in the same trade and dealing in the same products in which the assessee is dealing. The case of this firm for the AY 2010-11 was assessed by ITO Ward 1(1), Jaipur wherein the GP of this firm 15.30% on declared turnover of Rs. 11,77,70,683/- was accepted. The copy of assessment order of this firm is PB Page 489-490. In view of the above submission, the estimation of income by estimating the GP of 24% on estimated sales of Rs. 26.00 crore is highly unjustifiable and weighted average GP rate of last four years which comes to 16.98% on turnover of Rs. 25,06,61,673/- should be applied which gives GP of Rs. 4,25,62,352/-. The assessee has declared Gross Profit of Rs. 1,18,43,142/- in Trading Account filed with the return and the assessee has further declared Rs. 2,46,00,000/- in the return filed u/s 153A of the Act on account of undisclosed income from unaccounted sales/pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales computed by the Special Auditor in the estimates of gross turnover. The ld. CIT (A) as well as AO have not pointed out any defect in the calculation of gross turnover by the assessee on the basis of seized records. Therefore, It will be in the interest of equity and justice that weighted average gross profit rate of last four years i.e. 16.98% should be taken into consideration on turnover of Rs. 25,06,61,673/- which gives gross profit of Rs. 4,25,62,352/-. It is also noted that the assessee had declared the gross profit of Rs. 1,18,43,142/- in the trading account filed with the return and further the assessee had declared Rs. 2,46,00,000/- in the return filed u/s 153A of the Act on account of undisclosed income from unaccounted sales/purchase. Therefore, the trading addition of Rs. 61,19,120/- (Rs. 4,25,62,352/- minus (1,18,43,142+2,46,00,000) is sustained on the basis of weighted average gross profit rate on the basis of past history of the assessee. Thus the Ground No. 3 to 7 of assessee's appeal of the are partly allowed and Ground No. 1 of the Revenue is dismissed. 7.1 As regards ground no. 2 of the Revenue's appeal against restricting the disallowance u/s 40A(3) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hown by the recasted accounts by the Special Auditors. The AO mentioned that he has not rejected the parallel and duplicate books of account maintained in name "Jadavji" but the fact remains that the assessment was framed u/s 144 of the Act by applying the provisions of section 145(3) of the Act and the AO himself has estimated the profit by applying GP rate of 26.21% on consolidated sales determined by the Special Auditors in recasted accounts. The ld AO determined the consolidated sales at Rs. 26,96,46,926/- and applied the GP rate of 26.21% to estimate the profit. In this way, he estimated the overall profit of the assessee at Rs. 7,06,74,459/-. Since the profit computed by the Special Auditors was Rs. 6,85,43,951/- so he made further addition of Rs. 21,30,508/-. This action of the AO shows that he himself does not believe that recasted accounts by the auditors are true and correct. The AO himself held indirectly that the true profit cannot be deduced from the recasted account otherwise there was no need to estimate the profit by applying GP rate on the consolidated sales determined by the Special Auditors in recasted accounts. The assessment u/s 144 of I.T Act by applying the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the gross profit rate or net profit rate then no disallowance can be made u/s 40A (3) or any other provisions. The proviso to Section 40A(3) makes an exception that cash payment is not to be disallowed if it is an account of business expediency. After considering the submissions of the assessee, we feel that no separate addition is required to be made u/s 40A(3) because the books of accounts has been rejected and there has been. The addition of Rs. 3.21 lacs made u/s 40A(3) is deleted." Therefore, in view of various judicial pronouncements, the addition on account of disallowance made u/s 40A(3) cannot be sustained where the profit was estimated by rejecting the books of account and by applying the provisions of section 145(3) of I.T. Act. Further, the fact remains that the assessee itself has disallowed Rs. 3,07,550/- u/s 40A(3) in the return filed u/s 153A (refer copy of computation is at PB page 77) and it has also agreed for further disallowance of Rs. 27,542/- on account of cash payment recorded in regular books of account. Thus, the disallowance to the extent of Rs. 3,35,092/- is on agreed basis. Therefore in view of the above facts and circumstances and respectfull ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure and methods of determination of income cannot be apply.". (c) In para 3.3.6 at Page 4 of common notes annexed with special audit report (Copy at Page 29 of SAR) it has been mentioned that "in the books of accounts titled as "Jadavji" most of the purchases, sales, transfers, returns have been entered in pieces whereas in regular books of accounts, these have been entered in gms/cts. Therefore, in absence of common unit of measurement for those transactions which are not entered in regular books or vice versa, the correct quantitative stock cannot be determined by applying the standard auditing procedure". Thus, in this para the special auditors themselves expressed their inability to compute the stock on the basis of books of accounts named as "Jadav Ji" while as per terms of reference of audit they were required to compute the closing stock as on the date of search on the basis of these books of accounts. Further this was one of the ground for which the books of accounts were referred for special audit. Therefore the recasted accounts cannot be considered as compete and correct and correct profit there from cannot be deduced. (d) In para 4 at Page 5 of common notes annexe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which these books of accounts has been prepared and also in absence of complete information no one can completely correct to these books of accounts. The special auditors have clearly admitted that true profit cannot be derived from these books of account. Further, stock quantity is not available. As per terms of reference, the special auditors was required to compute the closing stock as per books as on the date of search. In this regard they clearly mentioned that quantitative details of stock cannot be worked out in absence of vital information. Thus, for the purpose of income tax proceedings the books of accounts named as "Jadavji" cannot be considered as books of accounts and the same can only be treated as gist of unaccounted transactions of the assessee where from no true profit/income can be determined and only some logical estimation of income can be made. D) In this regard it is further relevant to mention here that the books of accounts named as "Jadavji" were incomplete and incorrect thus the correct profit could not be compute from these books of accounts, therefore the case of the assessee was referred for special audit. However the special auditor made some adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intained in name "Jadavji or from recasted accounts prepared by the special auditors. In fact for all practical purpose he has rejected both set of books of account as he has estimated profit on consolidated turnover and assessment order was passed u/s 144 after applying the provisions of section 145(3) of Income Tax Act. It is settled law that the AO is quasi-judicial authority and should be governed in his function by judicial consideration and must conform to the rules of natural justice and must proceed without bias as held by Hon'ble Supreme Court in the case of Tin Box Co. Vs CIT 249 ITR 216 (SC). It is also settled law that the AO must act honestly on the material before him and not vindictively, capriciously, or arbitrarily as held by Hon'ble Supreme Court in the case of Gurumukh Singh Vs CIT 12 ITR 393, 427 (FB), Dakeshwari Cotton Mills Ltd Vs CIT 26 ITR 775. The taxing authority should not act in a manner as might indicate that scales are weighted against the assessee CIT Vs Simon Carves Ltd (1976) 105 ITR 212,218 (SC). But in our case, the ld AO has brushed aside all the principles of law and made the perverse findings as stated above. F) We further submit that the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are no two separate assessments one for regular transaction and other for unrecorded transaction. For both the transactions, single assessment order was passed that too u/s 144 of Income Tax Act by applying the provisions of section 145(3). Therefore in the eye of the law the action of the ld. AO serve no mean that he has rejected only regular books of accounts and rely on books of accounts named as "Jadavji" because for computing the total income the consolidated affairs were taken into consideration. If a part of the consolidated account is rejected, it means the whole is rejected. H) Though technically the ld. AO not rejected the books of accounts named as "Jadavji" but when we see the assessment order in entirety, your honor would find that he disbelieved to such books of accounts and indeed and for all practicable purpose the results of such books of accounts were rejected by ld. AO because he estimated the consolidated profit by applying GP rate on consolidated sales. The assessment order was passed u/s 144 of Income Tax Act by applying provisions of section 145(3). Thus for all practical purposes, he has rejected the books of accounts named as "Jadavji" also though not ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 CTR (All) 533 : (1998) 229 ITR 229 (All), decision of Hon'ble Himachal Pradesh in the case of Amrit Singh & Co. vs. ITO 2010-TIOL-832-HC-HP and decision of Hon'ble Rajasthan High Court in the case of CIT vs. G.K. Contractor (2009) 19 DTR (Raj) 305 were followed Rajasthan High Court Cases:- v) Commissioner of Income Tax Vs. Motilal Khatri (2008) 218 CTR (Raj) 602 : (2008) 7 DTR 139 Hon'ble Rajasthan High Court held that Disallowance under s. 40A(3)-No claim for deduction-Sec. 40A(3) only prohibits deduction of expenditure-Expenditure obviously means expenditure admissible as deduction which may include the expenditure on purchase and the like-In the instant case, assessee has not claimed deduction of expenditure on purchases of gold biscuits which were not recorded in his books of account- Therefore, no part of such expenditure can be disallowed under s. 40A(3) vi) The Hon'ble Jurisdictional High Court in the case of CIT Vs. G.K. Contractors, 19 DTR 305 held that if the profit is estimated by applying higher net profit rate after rejecting the books of accounts by invoking the provisions of Section 145(3) of the Act then no separate addition can be made on account of ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... timated and declared -Dhanvarsha Builders & Developers (P) Ltd. vs. Dy. CIT (2006) 105 TTJ (Pune) 376 : (2006) 102 ITD 375 (Pune) and DM Construction (ITA No. 1791/Pn/2005, dt. 26th Oct., 2007) followed; K) Without prejudice to above we further submit:- a) As regard disallowances on the basis of entries recorded in books of accounts named as "Jadvaji" this is to submit that the assessee has not claimed these expenditure as deduction in computing the profits in the return filed by the assessee u/s 153A of Income Tax Act. The assessee has surrendered the undisclosed income in the return on the basis of documents found in search showing amount in fictitious names and it claimed that this represents to assessee's undisclosed income earned from unaccounted business activities. b) The assessee was maintaining the account of unaccounted business in the name of Jadavji in the form of memoirs. The special auditors recasted the consolidated accounts. In the account maintained in name "Jadavji" payments were found against the expenses which were not recorded in regular books of accounts i.e. undisclosed expenses, which the assessee incurred against undisclosed income. The payment of und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Girdhari Lal Goenka Vs Commissioner of Income Tax, reported in 179 ITR 122, wherein their Lordships held as under : "The Income -Tax Officer has to take a pragmatic view of the matter. The Income- Tax Officer should take a practical approach to problem and strike a balance between the direction of law and hardship to the assessee. He should not enmesh himself in technicalities. After all, the object is not to deprive the assessee of the deduction which he is otherwise entitled to claim where the amount was paid in cash or received in cash. The Assessing Officer has to find out whether the transaction is genuine or not and if he finds that the transaction is genuine, he should allow the deduction, the circular of the Board is not exhaustive; it is only illustrative and the Assessing Officer has to take into account the surrounding circumstances, considerations of business expediency and the facts of each particular case in exercising his discretion either in favour or against the assessee. There be an oral agreement between the assessee and the seller for payment in cash seller may not be willing to accept cheques : cash payment may be made at the request of the payee who i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the genuineness of such expenses cannot be doubt. Further these payments were recorded in seized documents. Therefore, in view of the provisions of section 132(4A) of Income Tax Act, the entries recorded in seized documents are presumed to be true and correct. The rule 6DD has to be read in the context of the second proviso to sub-s. (3) of Section 40A where under a disallowance is not permissible if on consideration of business expediency an assessee is able to satisfy the AO that he was required to make payment in cash due to exceptional or unavoidable circumstances, or because payment by a crossed cheque or bank draft was not practicable, and/or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof. In the instant case once it has been established that the business in relation to which the payments are made was undisclosed business of the assessee, payment by crossed cheque or draft would not have been practicable considering the nature of the transaction and the assessee is not required to prove further more impracticability of not making the payments by a/c payee cheques or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ully following the judicial pronouncements of Hon'ble ITAT Jaipur Bench and Hon'ble Rajasthan High Court the addition of the remaining amount Rs. 6,83,29,399 minus Rs. 3,35,092/- = Rs. 6,79,94,307/- cannot be sustained. The AO is directed to delete the addition of Rs. 6,79,94,307/- made by disallowing the cash payment u/s 40A(3) of I.T. Act and the addition for the remaining amount Rs. 3,35,092/- is sustained as the same is on agreed basis. Assessee's appeal is partly allowed to that extent." Looking the observation of the ld. CIT (A) on the issue an the case laws relied on by the ld. AR of the assessee, we do not find any reason to interfere with the his order. Thus Ground No. 2 of the Revenue is dismissed. 8.1 As regards ground no. 3 of the Revenue's appeal against restricting the addition of Rs. 6,99,228/- by making disallowance u/s 40(a)(ia) of the Act to Rs. 4,81,614/- the facts as emerges from the order of the ld. CIT (A) is as under:- "3.4.3 I have duly considered assessee's submission and also taken a note of judicial pronouncements relied upon by the appellant as well as the factual matrix of the case. I have decided identical issue in respect to addition made on a/c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 144. Having estimated the income from book publishing by enhancing the Net profit as otherwise returned by the assessee on the basis of financial statements submitted along with the return with Form 3CD, the Assessing Officer tried to indicate that the relevant expenditures were to be burdened with tax deduction at source which had not been done. The observation of the Assessing Officer therefore only led to the finding that the non-deduction of tax at source was to be considered under the provisions of Chapter XVIIB which the learned DR pointed out was to be considered u/s. 201 of the I.T.Act. The various decisions cited at the Bar and noted by the learned CIT (A) therefore indicate that the assessee would have never tried to deduct tax at source on these payments for claiming these expenditures for the purpose of its business insofar as the AO having allowed these expenditures on estimation of the income at a percentage indicated allowance of expenditure of the remaining receipts as expenditure. Those receipts were spent by the assessee therefore could not have been further considered for disallowance as noted by the Assessing Officer the provisions of Section 40(a)(ia) as penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO. Now based on the reliance on the same books disallowance u/s 40(a)(ia) is not proper. The estimation of income takes care of the irregularities committed by the assessee. In view of the above submission the ld CIT (A) has rightly deleted the addition. The humble assessee prays your honor kindly to confirm the findings of ld CIT (A) and dismiss the ground raised by revenue." 8.4 We have heard the rival contentions and perused the materials available on record. It is noted that the ld. CIT (A) has restricted the of Rs. 6,99,228/- by making disallowance u/s 40(a)(ia) of the Act to Rs. 4,81,614/- by observing as under:- "...Therefore in view of the above facts and circumstances and respectfully following the judicial pronouncements of various benches of Hon'ble ITAT the addition of the remaining amount Rs. 6,99,228/- minus Rs. 4,81,614/- = Rs. 217614/- cannot be sustained. The AO is directed to delete the addition of Rs. 2,17,614/- made by disallowing u/s 40(a)(ia) of I.T. Act and the addition for the remaining amount Rs. 4,81,614/- is sustained as the same has been added by the assessee in the return filed u/s 153A of the Act. Assessee's appeal is partly allowed." Lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. As per findings of the Hon'ble Delhi High Court in the case Nipun Builders and Developers Pvt. Ltd. Vs. CIT (supra), the Investigation Officer at Kolkata had not deputed Inspector to enquire the whereabouts of the company. The case laws referred by the assessee are squarely applicable on the facts and circumstances of the appellant's case, therefore, we reverse the order of the ld CIT (A) on technical ground as well as on merit also...." Respectfully following the decision of Hon'ble ITAT Jaipur Bench, Jaipur in the case of assessee itself, I direct the AO to delete the addition of Rs. 70,00,000/- made by him on account of share capital. Assessee's appeal stands allowed. 9.2 During the course of the ld. DR relied on the order of the AO. 9.3 On the other hand, the ld. AR supported the order of the ld. CIT(A). The ld. AR of the assessee filed the written submission alongwith case laws which has been taken into consideration. 9.4 We have heard the rival contentions and perused the materials available on record. It is noted from the records that the assessee had received following share application in A.Y. 2006-07, A.Y. 2006-08 and A.Y. 2010-11. (i) AY 2006-07 Name of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and what evidences collected which goes against the assessee. The notice U/s 131 issued by the ITO, Investigation Wing, Kolkata were served in case of Vidya Agencies Pvt. Ltd. and Shivarpan Mercantiles Pvt. Ltd., but compliance could not be made on the given date because concerned officer was on leave. In case of Middleton Goods Pvt. Ltd. And Lactrodryer Marketing Pvt. Ltd., notices were served on the assessee and in compliance to the notice, the party submitted all the documents in the IT office. The case law referred by the ld CIT (A) i.e. decision of Hon'ble Delhi High Court in the case of Nipun Builders and Developers Pvt. Ltd. Vs. CIT and Vijay Power Generator Ltd. Vs CIT (supra) are not squarely applicable on the facts of the case as there was short time available with the Assessing Officer as well as Investigation Wing of Kolkata. The copy of inquiry has not been provided by the Assessing Officer to the assessee. As per findings of the Hon'ble Delhi High Court in the case Nipun Builders and Developers Pvt. Ltd. Vs. CIT (supra), the Investigation Officer at Kolkata had not deputed Inspector to enquire the whereabouts of the company. The case laws referred by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remium cannot be sustained and AO is directed to delete this addition. Assessee's appeal in Gr No 16 stands allowed." 10.2 During the course of hearing, the ld. DR relied on the order of the AO. 10.3 On the other hand, the ld. AR of the assessee relied on the findings of the ld. CIT (A) and also filed the following written submission which has been taken into consideration. "Further, we submit that there is no evidence with ld. AO that the bill premium expenses are incurred in relation to procuring the bogus bills. The copy of ledger a/c of bill premium is at PB Page 586. From examining the books of accounts your honour would find that there are only two entries in the a/c one of Rs. 2000/- of Baheti Gems and second of Rs. 3,516/- of Mr. Girdhari. The explanation as regard the nature of the transaction is as under:- (i) Baheti Gems & Jewels Purchases of Rs. 2,04,000/- Bill Premium. Rs. 2000/- During the year under consideration the assessee company made purchases of Rs. 2,04,000/- from this party which is entered in regular books as well as in books of accounts named as "Jadavji". The copy of ledger a/c of this party in books of accounts of "Jadavji" is at PB Page 344. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as paid to this party. In this regard this is to submit that this party charged some extra amount if bill is taken alongwith the goods. So the assessee credited the original value of the goods and charges against the bill separately in the account of the party. The bill premium does not represent to bogus bill but extra amount payable for billing. This extra amount is part and partial amount of value of the goods. The assessee made separate entry against the billing charges in order to pursue the party to reduce it on final payment. Had it was bogus bill, there could not be any entry of credit bills in No 2 account. Rather full descriptions as regard design no etc are given. Further no any entry showing the return of cash against the cheque given was found anywhere in the seized document. The seized No 2 books ("Jadavji") as well as regular books both shows the issue of cheque against the purchases. Had this entry was against the bogus bill, than there would be entry of receipt of cash as against issue of cheque in no.2 books of account. The special auditors treated this purchase as bogus only on the basis of presumption and assumption which was beyond the scope of terms of referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 38,28,086 was shown by the assessee in the books of account as "market outstanding". According to the assessee, the payment was outstanding against the labour and goods supplied. It is true that on being asked, the assessee was not able to explain these entries by producing the adequate proof to the satisfaction of the AO. However, in our considered opinion, even if the assessee has failed to discharge his onus of proof in explaining the cash credits shown in the books of account as "market outstanding", the AO having estimated the higher profit rate on total contract receipts after rejection of the books of account invoking the provisions of s. 145(3), no separate additions can be made on account of unexplained cash credit under s. 68 of the Act of 1961. We are in complete agreement with the view taken by the CIT(A), confirmed by the Tribunal. Thus, no substantial question of law arises for consideration of this Court in this appeal." Therefore, respectfully following the decision of Hon'ble Rajasthan High Court in above case I hold that separate addition cannot be made where the addition was sustained by applying the GP rate and AO is directed to delete this addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and opined that as per explanation-2 of the section 132B of the Act, the "existing liability" does not include self assessment tax liability. Therefore, credit of amount lying in the PD account can't be adjusted against the self assessment tax liability. However, Shri Vijay Goyal AR contends that as per the law as applicable at that time, Section 132 B (1) of the Act provides for adjustment of assets seized against any existing liability and he relying on following judicial pronouncements, has further submitted that the liability to pay self assessment tax is an existing liability and amount lying in PD A/c is adjustable against the existing liability: * Kesar Kimam Karyalaya (High Court Delhi) * Kanishka Prints Pvt Ltd (ITAT Ahmadabad) * Sudhar M Shetty (ITAT Mumbai) * Nikka Mal Babu Ram (SOT Chandigarh) In case of Nikka Mal Babu, Hon'ble ITAT Chandigarh has observed inter alia as under: "......8. Quite clearly, it prescribes that the assets seized under s. 132 can be adjusted (a) against the amount of any existing liability under this Act; (b) against the amount of liability determined on completion of assessment under s. 153A; (c) against the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction has to prevail in this situation. In the present situation, it is evident that cash was seized from the assessee during search operation and, assessee requested the Department to adjust a part of such cash receipts against the liability of advance tax which arose on account of the income surrendered during the search operation. The Department does not deny possession of the cash since the time of search. Thus, we find no justification for the Revenue to interpret the expression 'existing liability' in s. 132B(1)(i) as not referring to liability of advance tax. Under the IT Act, liability towards advance tax is a part of the scheme of recovery of taxes and such liability definitely falls in the expression 'existing liability' used in s. 132B(1)(i) in the facts and circumstances of the case. The reliance pleaded by the CIT (A) on the judgment of the Hon'ble Madhya Pradesh High Court in the case of Ramjilal Jagannath & Ors. vs. Asstt. CIT (1999) 156 CTR (MP) 49 : (2000) 241 ITR 758 (MP) is quite misplaced. As per the Revenue, in terms of the said judgment, the seized cash cannot be adjusted towards advance tax liability. We have carefully perused the said judgment and fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to adjustment of seized cash against advance tax liability and therefore no interest could be charged u/s 234A & 234B in the event of department not responding to assessee's request for adjustment of cash seized against advance tax liability. Here I would like to refer decision of Hon ITAT Agra Bench in case of ACIT Vs. Sunil C Gupta [ITA No. 290/Agra/2013 Dt of pronouncement 28/02/2014] wherein Hon'ble ITAT Agra has held that cash seized to be adjusted against advance tax liability as Explanation-2 to Section 132B of the Act is enacted with effect from 1st June 2013. In this case, Hon'ble ITAT has upheld the observations of Id CIT (A) which are as under - "..........I have carefully considered the assessment order as well as the written submission of the appellant, Remand report and the rejoinder on this issue remand report and the rejoinder. In this case Search and Seizure Operation was carried out in the premises of Shri Sunil Chand Gupta on 10.03.2010 wherein cash amounting to Rs. 4,31,36,000/- was seized from the residence and locker and was deposited by the department in the PD account on 10.03.2010 and 19.03.2010. During the course of search th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax in respect of that amount arises even before completion of the assessment. The Hon'ble High Court further held that section 132B(1) of the Act, thus not prohibit the utilization of amount seized during the course of search towards the advance tax liability. The Hon'ble High Court of Punjab & Haryana in the case of CIT Vs. Ashok Kumar reported in 334 ITR 355 has also held on similar facts that the assessee was entitled to adjustment of seized cash against advance tax liability and therefore, no interest could be charged u/s 234A & 234B in the event of the department no responding to assessee's request for adjustment of cash seized against advance tax liability. In view of the following judgments, the action of the AO in charging interest under 234A, 234B & 234C is not justified and hence, directed to be deleted." In view of facts and circumstances of the case as discussed above and respectfully following the decisions of aforementioned judicial pronouncements AO is directed to re-compute the interest chargeable u/s 234 B after giving credit of amount of Rs. 45,00,000/- ( Lying in PD A/c) against the self assessment tax liability fallen due on 31-03-2012. The assessee's appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d No. 7 of the Revenue is dismissed. 13.1 The Ground No. 8 of the assessee is regarding not allowing the benefit of telescoping, recycling and rotation of funds. 13.2 We have heard the rival contentions and perused the materials available on record. The Ground No. 8 of the assessee is infructuous as no addition has been sustained on the basis of unexplained expenditure or assets. Thus Ground No. 8 of the assessee is dismissed. 14.0 In the result, the appeal of the assessee is partly allowed and that of the Revenue is dismissed. 15.1 Now we take up the cross appeals for the assessment year 2010-11. Respective grounds raised by the assessee and Revenue are as under:- ITA No. 447/JP/2016 -Assessee 1. On the facts and in the circumstances of the case and in law the ld CIT (A) erred in rejecting contention of the assessee that the reference to special audit report under S.142(2A) of Income Tax Act is purely based on the recommendation in appraisal report and the AO has not applied his mind with regard to the nature and complexity of the accounts of the assessee. It is contended that the AO's opinion cannot be substituted by another officer's opinion. Thus, the ld CIT (A) err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case ld CIT (A) was right in restricting the trading addition of Rs. 91,37,068/- (i.e. 92,89,007/- minus Rs. 1,51,939/-) to Rs. 58,70,206/- made by the AO without appreciating the fact that total sale consideration and gross profit rate had been determined by the special auditor which has also been held valid by ld CIT(A). 2. Whether on the facts and the circumstances of the case the ld CIT (A) was right in restricting the disallowances of Rs. 2,71,50,538/- to Rs. 1,20,751/- made U/s 40A(3) of the Act without appreciating the fact that this violation of the provision of the Section 40A(3) of the Act has been clearly mentioned in the special audit report. 3. Whether on the facts and the circumstances of the case the ld CIT (A) was right in deleting the addition of Rs. 3,87,948/- made on account of non-genuine purchases from M/s Aditya Gems without appreciating the fact that every assessment year is a separate year and submissions of one year can't be considered as proof in another year and further assessee failed to prove the creditworthiness, genuineness and identity of the said party." 16.1 Brief facts of the case are that the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was approved by the ld CIT, Central, Jaipur and the AO vide his letter dated 22.03.2013 (Copy at PB Page 180-181) directed to assessee to get its accounts audited u/s 142(2A) of Income Tax Act, 1961 as per the terms of reference which has been reproduced by AO at Page 7 of assessment order. The special auditors gave the report vide their report dated 14.09.2013 which was received to assessee on 17.09.2013 and the same was filed to AO on the same date (Copy of letter is at PB Page 182) wherein the net profit of the assessee company was computed Rs. 92,89,007/- as against Rs. 1,51,939/- shown by the assessee. The copy of special audit report is separately filed as Paper Book Vol-4. The assessment of the assessee was completed by the AO vide his order dated 14.11.2013 passed u/s 144 r.w.s.143(3) of Income Tax Act, 1961 assessing the total income of assessee Rs. 3,70,98,760/- as against returned income of Rs. 4,23,150/- by making the following additions/disallowances: - S. No Particulars Amount (Rs.) 1. Undisclosed income/profit 91,37,068 2. Disallowance u/s 40A(3) of Income Tax Act, 1961 2,71,50,538 3. Disallowing 25% of total purchases of Rs. 15,51,792/- made from M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee and computed the consolidated net profit of Rs. 2,30,22,563.45. ( PB Vol -iii Page 81-82 of special audit report). This profit is after appropriation to P & L; Rs. 1,86,327/-on account of deferred tax assets, Rs. 1,30,753.00 on account of Provision for Income Tax and Rs. (Cr) 1,40,50,636.50 on account of Opening Balance (Profit/loss) A/c. Therefore, the net profit before the appropriation was calculated by the special auditors at Rs. 92,89,007/-. This profit is subject to some common notes/observations/limitations mentioned in the special audit report. Therefore, this profit should be seen along-with the following common notes/observations/limitation mentioned by the special auditors. (i) In para 3.3 of Heading "BREIF FACTS AND BSERVATIONS:- annexed with special audit report (Copy at Page 27-28 of SAR) it has been mentioned that:- "On perusal of the Seized Material, regular books of accounts, supporting documents and responses to the queries raised and explanation furnished during our audit and before AO for the Relevant Period, it emerges that by applying the standard auditing procedure, neither the statement of affairs nor profit or loss as desired can be determined" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain entries in the financial statements drawn or there may be also exist certain other limitations imposed by the circumstances." All the above notes/observation and limitations show that the books of accounts naming "Jadavji" has been written in such as manner that correct statement of affairs and profit of the assessee company cannot be derived and only some estimation/guess work has be done with recasting of the accounts. When the estimation/guess is made in recasting of the account, the trading results may differ person to person who makes estimation or guess. The special auditors themselves have admitted at page 33 of their report that any change in estimation or assumption may lead to change in financial statements. I agree with the contention of ld AR that in point no II of terms of reference for special audit, it has been clearly mentioned by the AO to recast the trading and P & L A/c on accounting principles and on the basis of seized material. The AO has not assigned the task to special auditors to compute the income or recast the Trading and P & L A/c by applying the presumption and assumption or on estimation. There was no scope of application of presumption, ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of stock transferred to Indore out of unaccounted income 7204766 4. Purchases of diamond against negative stock in stock register 268345 Stock Increased in regular books as on 31.03.2011 1,00,99,593.06 The ld AR of the assessee submitted that the GP of assessee was increased by 18,66,349.89 against which the corresponding increase was made in the closing stock. The ld AR submitted that the GP has been increased by Rs. 13,60,178.28 on account of valuation of 60.57 ct diamond, which was made at Rs. 13,60,178.28 as against cost taken by special auditors at Rs. 2,68,345/- for 63.14 Ct. The special auditor mentioned in note No (i) at pg 40 of SAR (Vol III of PB), that there was negative stock of diamond 60.57+2.57 totalling to 63.14 ct. The assessee explained that there was no negative stock but due to consolidated one entry of consumption in stock register for the month on 01-11-2010, the stock register shows the negative stock of 60.57 on 01-11-2010 pg 179 of SAR (Vol III of PB). However, the special auditor treated it as unaccounted purchases by Rs. 2,68,345/- for 60.57+2.57 totalling to 63.14 ct. On treating it as unaccounted purchase, the same was also added in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... less than 15%. Even in the next year AY 2012-13, the GP of Rs 2,43,34,969.12 was accepted on sales of Rs. 14,41,31,286.15 which gives the GP rate of 16.88%. The weighted average GP rate for the AY 2006-07 to AY 2012-13 comes to 16%. I have estimated the profits for AY 2010-11 by applying GP rate of 24% on consolidated sales but the fact remains that in AY 2010-11, the substantial part of sales was unaccounted sales. In unaccounted sales the profit remains always higher as the saving on account of taxes etc which comes to around 4%. Considering this fact and assessed GP in past and next year, I estimate the GP rate of 20% on the declared sales of Rs. 12,28,29,758/-. Thus, the Gross Profit comes to Rs. 2,45,65,951.60/-. The assessee has shown gross profit of Rs. 1,72,12,445.56 in its regular return. Thus, the short fall in GP is determined at Rs. 73,53,506.04. The assessee has declared Rs. 15,00,000/- in the return filed on account of undisclosed income from unaccounted sales/purchases. In Profit and Loss account the assessee disclosed this income by mentioning that "Income taken into account on the basis of statements recorded in search/documents found during Income tax search bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax Act is best judgment it means income should be assessee considering the best available material, past history, nature and practice of trade in such manner which gives a justifiable result. The lower authorities have assessed higher business profit but no asset or stock was found corresponding to enhanced profit. Further, The assessee has cited comparable case of similar nature trade of M/s Rambhajo's. (PAN: - AAJFR4553Q) who was assessed at Central Cirlce-1, Jaipur u/s 153A for AY 2010-11 and the GP rate of 15.30% has been accepted. Further the GP rate in most of the years was assessed to less than 15%. Even in the next year AY 2012-13, the GP of Rs 2,43,34,969.12 was accepted on sales of Rs. 14,41,31,286.15 which gives the GP rate of 16.88%. The weighted average GP rate for the AY 2006-07 to AY 2012-13 comes to 16%. S. No. A.Y Turnover G.P G.P. Ratio 1 2006-07 3531618.00 512723.00 14.52% 2 2007-08 18562148.00 2509297.00 13.52% 3 2008-09 20591252.00 3047886.00 14.80% 4 2009-10 12824830.00 3356643.00 26.17% 5 2010-11 69891003.00 11843141.55 16.95% 6 2011-12 122829758.50 17212445.56 14.01% 7. 2012-13 144131286.15 24334969.12 16.88% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade disallowance by holding that the assessee is indulged in illegal activities by not recoding the correct purchases, sales, Revenue & capital transaction in its regular books of accounts and payments against the purchases and expenditure were made in cash and no relaxation can be given for the illegal activities. He further held that he has not rejected the parallel and duplicate books of accounts maintained by the assessee and judicial decisions relied upon by the assessee are not applicable to the case of the assessee. On the other hand the ld AR submitted that the assessee was not engaged in any illegal business or a business prohibited by law. The sales pertaining to this year has been accepted by the AO. No any parallel or duplicate books of account for the year were found by the search party. It is an admitted fact that no entry was found in the books maintained in name "Jadavji" for the current year. The books of account and documents seized by the department do not show any entries of alleged cash payment of Rs. 2,38,345/- on account of cash purchase of diamond. The AR submitted that the seized paper (pg 2 Exhibit 2) shows the cash payment of Rs. 27,16,000/- in the name o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limitation of records and method of accounting. Further, the purchases in respect to seized document page 2 of Exhibit 2 pertain to AY 2010-11 and the fact remains that the profit of the assessee for AY 2010-11 by applying the GP rate of 26.21% was estimated and the assessment was finalized u/s 144 of I.T. Act after applying the provisions of section 145(3) of Act. Various Benches on Hon'ble ITAT including the jurisdictional Jaipur bench of Hon'ble ITAT and various High Court including the jurisdictional Hon'ble Rajasthan High Court has held that where the estimation of income is made by applying GP rate, further disallowance cannot be made by applying the provisions of section 40A(3) of Income Tax Act. It would be worthwhile to reproduce the relevant para of decision of Hon'ble ITAT Jaipur Bench, in the case of Shri Shankar Khandelwal v/s ACIT, Central Circle-1, Jaipur (supra) as under:- "5.9 We have heard both the parties. The ld. AR during the course of proceedings before us has argued that no disallowance u/s 40A(3) can be made in case the books of accounts are rejected. Our attention was drawn towards the fact that the AO has rejected the books of accounts and has made the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be allowed. We agree with the contention of the Ld. D.R. that the expenditure which has been incurred wholly and exclusively for the purpose of business alone can be allowed and it is not verifiable from the seized material that this expenditure is incurred wholly and exclusively for the purpose of business of the assessee. We also agree with the Ld. D.R. that most of the expenditure being incurred in cash and some of which may be for illegal purposes is also not allowable under sections 40A(3) and 40(a)(ia) of the I.T. Act. Therefore, the contention of the Ld. Counsel for the assessee that the entire payments mentioned in the seized material is to be allowed while treating the receipts as income of the assessee is not tenable. However, we also agree with the Ld. Counsel for the assessee that the entire receipts recorded in the registers cannot be treated as the income of the assessee. The relatable business expenditure has to be allowed from the receipts to compute the undisclosed income of the assessee. Therefore, the only course open to the Revenue would be to reject the books of account maintained by the assessee and to estimate the business income of the assessee. As the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 2 of the Revenue is also dismissed as indicated in Revenue's appeal (supra). 19.1 The Ground No. 3 of the Revenue is regarding deletion of addition of Rs. 3,87,948/- made by AO by treating the purchases made from M/s. Aditya Gems as unverifiable/ non-genuine. The facts as emerges from the order of the ld. CIT (A) is as under:- "3.4.3 I have duly considered assessee's submission and also taken a note of the factual matrix of the case as well as judicial pronouncements relied upon by the appellant. AO has treated the purchases from M/s Aditya Gems as non genuine on the basis of finding that no document was produced by the assessee and the assessee has not produced the party before him for cross examination. It is submitted that vide the letter dated 19.02.2013, the assessee has submitted the following documents in respect of purchases made from Aditya Gems (Prop. Shree Kant Soni) to substantiate its claim of genuineness of the purchases (PB Page 595-619): i) Copy of ledger a/c of assessee in books of accounts of this concern. ii) Copy of sales Tax registration of party. iii) Copy of PAN card of party. iv) Copy of bank a/c of party showing the entry of payment recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sustained. The AO is directed to delete the same. Assessee's appeal succeeds. It is noted that the order of the ld. CIT (A) is well reasoned and we find no reason to interfere with the order of the ld. CIT(A). Thus Ground No. 3 of the Revenue is dismissed. 20.1 Ground No. 1 of the assessee is regarding challenging the validity of assessment reference made for special audit and validity of assessment order. 20.2 We have heard the rival contentions and perused the materials available on record. It may be noted that this issue has been decided against the assessee confirming the action of the ld. CIT (A) in the case of the assessee for the assessment year 2010-11 (supra). Hence, the decision taken in the appeal of the assessee for the assessment year 2010-11 shall apply mutatis mutandis in the assessment year 2011-12 also. Thus Ground No. 1 of the assessee is dismissed. 21.1 The Ground No. 6 of the assessee is regarding not allowing the benefit of telescoping, recycling and rotation of funds. 21.2 We have heard the rival contentions and perused the materials available on record. The Ground No. 6 of the assessee is infructuous as no addition has been sustained on the basis of une ..... X X X X Extracts X X X X X X X X Extracts X X X X
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