Income Tax Appellate Tribunal - Mumbai
Ashapura Garments Ltd, Mumbai vs Department Of Income Tax on 27 March, 2012
IT(SS) No.41 & 49 of 2008
Ashapura Garments Mumbai
IN THE INCOME TAX APPELLATE TRIBUNAL
"H" Bench, Mumbai
Before Shri D.K. Agarwal, Judicial Member and
Shri B. Ramakotaiah, Accountant Member
IT(SS) No.41/Mum/2008
(Block Period: 1.4.1996 to 12.12.2002)
Ashapura Garments (P) Ltd ACIT Central Circle 41
301, Navyug Industrial Estate Aayakar Bhavan
T.J. Road, Vs MK Road,
Sewri Mumbai 400020
Mumbai 400015
PAN - AABCA 4027 H
(Appellant) (Respondent)
IT(SS) No.49/Mum/2008
(Block Period: 1.4.1996 to 12.12.2002)
ACIT Central Circle 41 Ashapura Garments (P) Ltd
Aayakar Bhavan 301, Navyug Industrial Estate
MK Road, Vs T.J. Road,
Mumbai 400020 Sewri, Mumbai 400015
PAN AABCA 4027 H
(Appellant) (Respondent)
Assessee by: Shri Vijay Mehta
Department by: Shri Goli Srinivas Rao, CIT-DR
Date of Hearing: 27/03/2012
Date of Pronouncement: 04/05/2012
ORDER
Per B. Ramakotaiah, A.M.
These are cross appeals by assessee and Revenue against the orders of the CIT (A) Central-III, Mumbai dated 14-02-2008. Most of the issues are common and arises out of proceedings under section 132 and 133A on the group concerns and the assessment order passed under section 158BC of Income Tax Act.
Page 1 of 33IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai
2. We have heard the learned Counsel and the learned Departmental Representative in detail. Assessee also placed paper book in two volumes running into page Nos. 1 to 253 evidencing various transactions and contentions. After considering the details on record, the issues are considered ground-wise:
IT(SS) No.41/Mum/2008
3. Assessee has raised various grounds with reference to the additions made under section 158BC consequent to the search/survey proceedings. Assessee also filed an additional ground which is a legal ground with reference to benefit of telescoping in respect of additions made on income basis vis-à-vis additions made on expenditure/investment basis. Since this is a legal issue and does not require any examination of facts, the additional ground after discussion with the Departmental Representative and considering his objections was allowed following the principles laid down by the Hon'ble Supreme Court in the case of National Thermal Power Corporation Ltd vs. CIT, 229 ITR 383.
4. Ground No.1 is as under:
"The learned CIT (A) Central-III Mumbai erred in confirming the addition of `.1,50,25,864/- to the income of the appellant on account of alleged unexplained investment with HMA Group".
5. This ground relates to treatment of `.1,50,25,864/- as unexplained investment. The related facts in brief are that assessee is a manufacturer of denim jeans and was covered by search and seizure action on 12.12.2002. During the course of search certain bills relating to the HMA group were found with the assessee and hence the HMA group was covered by a survey u/s. 133A. The HMA group comprising M/s. HMA Interlinings Pvt. Ltd., M/s. HMA International and M/s. Super Garment Accessories, is engaged in Page 2 of 33 IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai making linings for jeans as well as supplying zippers for jeans. During the course of survey, three invoices in the names of the assessee were found with M/s.HMA Interlining Pvt. Ltd., reflecting transactions totaling `1,19,94,864/-, which were neither recorded in the books of account of the assessee nor in the books of account of the respective parties. During the search, the director of M/s. HMA Interlining Pvt. Ltd., Shri Manohar Ahuja was questioned on these transactions and it was stated by him that the bills did not represent real transactions but were merely accommodation bills, prepared solely for the purpose of discounting the L/C's with bank and clearing outstanding dues. As such, the relatable sales had been entered earlier and hence there was no fresh entry in his books. During the course of block assessment proceedings, the assessee was also questioned by the AO on this point, in response to which it was submitted that these bills pertained to supplies made earlier against which, though delivery was taken, payments had not been made. It was hence, only in order to clear the outstanding payment that the bills were prepared again for discounting with the bank. During the course of block assessment proceedings, the AO also found that further purchases of `30,31,000/- from M/s. HMA Interlining Pvt. Ltd. were neither recorded in its books nor in the books of the assessee. Similar explanation was given in respect of transactions of `30,31,000/- too. The AO rejected the above contention of the assessee on the following ground, viz, while all other bills were found to be entered in the books of account of assessee as well as M/s HMA Interlining Pvt. Ltd., it was only the bills in question, which were unaccounted. AO also found this to be solitary instance of such kind. The AO also found that the ledger account of the parties had been debited by Page 3 of 33 IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai assessee by way of LC issued against the same amount appearing in the bills of HMA Group.
6. The AO has, therefore, observed in the assessment order as under:
"Importantly, the said party is able to get this bill discounted with Abhyudaya Co-op Bank. Had it been not the case that sales had not been effected, then the assessee would not have been able to issue the LC and the party would not have been in a position to get it discounted. This has to be a real sale supported with delivery challans but only not reflected in the books of accounts of the parties."
7. He, therefore, made the addition of `1,19,94,864/- and `30,31,000/-, against which assessee preferred appeal before CIT(A).
8. During the course of appeal proceedings before CIT(A), the confirmation of M/s. HM Interlining Pvt. Ltd. together with an affidavit of Shri Manohar Ahuja was filed to substantiate that no actual sales were made by the HMA Group to assessee either on 13.04.1999 or on 09.12.2000 and that the bills in question had been mere accommodation bills. As these documents had not been filed before the AO during the course of assessment proceedings and therefore constituted fresh evidence, the matter was sent in remand to the AO. In the remand report after examination of the documents as above, the AO has concluded that "Mere submission of affidavit is not sufficient to denounce the facts gathered during the search. The delivery challans have been signed the assessee giving sufficient proof for the purchase of the goods. The letter of credit is also very concrete evidence proving the payment male to the firms involved in the transactions. To say that, L.C. (letter of credit) was produced to the bank for obtaining the loan, only indicates some unlawful activity, which are not possible in normal circumstances because the bank makes necessary Page 4 of 33 IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai verification before granting the loan. In view of these circumstances, the statement/affidavit of Mr. Ahuja is an after thought, meant only for accommodating assessee".
9. When confronted with the above findings in the remand report, it was submitted that the AO's observation in fact was confirming the contention of the assessee that though the purchases were not recorded, LC's discounted were recorded in the books of account against the old outstanding. The ledger accounts of the parties concerned together with the relatable bills were filed to substantiate that as on 13.04.1999 and 09.02.200 the outstanding balances were as under:
a) On 01.02.2000 outstanding with M/s HMA Interlining Pvt.
Ltd of `.50,38,186/- against which LC's of `.45,20,821/- was adjusted.
b) On 01.02.2000 outstanding with M/s Super Garment Accessories of `.47,46,704/- against which LC's of `.56,39,479/- was adjusted.
c) On 01.04.1999 outstanding with M/s HMA Interlining of `.19,59,579/- against which LCs of `.18,34,564/- was adjusted.
d) With regard bills found during the course of assessment proceedings relating to M/s HMA Interlining Pvt Ltd, it was pointed out that as on 01.04.1999 there was an outstanding of `.1,15,05,157/- against which LCs of `.30,31,000/- was discounted.
Further, a copy of the bank statement of assessee company with Abhyudaya Coop. Bank was filed to substantiate that the LCs discounted were also repaid well before the date of search and were also accounted for in the books of assessee. It is, therefore, Page 5 of 33 IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai submitted that both the books of account of assessee was well as that of the parties concerned confirmed that the bills in question were merely accommodation bills. It was further submitted that assessee had a running business with the three parties in question, a fact which was not disputed by AO also. The very fact that there were outstanding as on 13.4.1999 and 09.02.2000 substantiated the contention of assessee that purchases from these parties had been entered into books of account earlier and the said bills were accommodation bills prepared in order to make payment against the outstanding. However, it was submitted that the bill to bill correlation was not possible as the outstanding comprised a large number of small bills. It was also pointed out that both assessee company and parties concerned had confirmed that the bills in question were accommodation bills during the course of search itself. Moreover, the contention of AO that the bills were reflecting unaccounted purchases as above was not substantiated by evidence found during the search as no excess stock of interlinings was found, and neither any evidence of cash sales of Interlinings nor any excess cash found. It was further pointed out that the bill in question were dated 13.04.1999 and 09.02.2000 and on the date of search, i.e., on 12.12.2002, the books of account of both parties were closed and audited, and the return of income had also been filed. Therefore, it was pointed out that the bills could not have been the actual bills for purchases, but were accommodation bills. It was also submitted that the transactions of purchaser had never been denied by the assessee. The only difference was that the transactions had taken place on earlier dates and the bills in question merely represented earlier transactions against which no payments were made. The contention therefore, was that bills in Page 6 of 33 IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai question found with MIs. HMA Interlining had been prepared only as accommodation bills and therefore no addition was warranted.
10. After that the learned CIT (A) however, confirmed AO's action by holding as under:
"2.4. I have perused the facts, and considered the contention of the appellant. The undisputed facts are that addition has been made on the basis of the following four bills :-
A) Purchases from:
M/s HMA Interlining Pvt.Ltd. ` 45,20,821/- on 09.102.2000 M/s SuperGarments Accessories ` 56,39,479/- on 09.02.2000 M/s HMA Interlining `.18,34,564/- on 09.02.2000
-----------------
Total `.1,19,94,864/-
=========== M/s HMA Interlining Pvt Ltd. `.30,31,000 on 13.04.1999.
These bills were neither entered in the books of account of appellant nor in the books of the respective parties. Another undisputed fact is that though the bills as above were not recorded, payments against these bills were recorded in the books of assessee as well as the parties concerned. Both the AO and the appellant do not deny the fact that actual purchase of interlinings aid zippers was made and delivery taken. The dispute is regarding the date of purchase/ delivery. The AO is relying on the four bills as above dated 13.04. 1999 and 09.02.2000 as well as L/Cs discounted to stress that purchase, delivery and payment took place on the respective dates and has made the addition as they were not entered in the books of the appellant. The appellant' contention is that the purchases had been recorded earlier and the bills in question represented accommodation bills in order to facilitate the repayment of outstanding by discounting LCs and therefore were not recorded on the dates mentioned in the bills. 2.5. During the appeal proceedings, the appellant was required to co-relate the purchases reflected in the bills found and seized with purchases already entered in the books of account.
However, on the pretext that the outstanding payments to be made to the HMA Group comprised numerous bills of small amounts, the appellant submitted that no such co-relation was possible. The failure of the appellant in making the co-relation thus clearly establishes the fact that its contention that purchases of `.1.50 crores were recorded on earlier dates, Page 7 of 33 IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai remains unproved. The bills confirm the fact that actual purchases were made and the loan from the bank further confirms the fact that the transactions were actual, genuine transactions, where delivery of goods was also taken and this fact acknowledged even before a third party, i.e. the bank. The onus is therefore, definitely on the appellant to prove that the transactions were not real as claimed by it because the seized bills in question clearly establish the contrary of purchase made and delivery taken of goods worth `.1.50 crores. The appellant's failure and inability to establish a nexus between purchases as per purported accommodation bills and the recorded purchases can only lead to one logical conclusion namely that the purchases are out of book purchases and hence represent unexplained investment. It is the appellant's case that the entry in its books of the L/C's discounted against outstanding as well as the entry of repayment, both before the date of search, proved that the bills in question were merely accommodation bills and did not reflect any real transactions as no prudent person would record payments against purchases without recording purchases. The appellant's contention is absolutely baseless because unrecorded purchases is one thing and bogus purchases absolutely another. Evidences during search established unrecorded purchases of `.1.50 crores. The appellant raised loans on such unrecorded purchases actually made, issuing L/Cs against bills of `.1.50 crores in favour of the HMA group, who discounted and adjusted the same against outstanding arising out of regular, recorded sales to the appellant. But before the search, this ingenious manner of simultaneously reducing profit and making available liquidity would not have been detected. As the loan so raised was utilized for payment of recorded outstanding, the entry had to be made in the regular books of account. Therefore, the entries per se of discounting and subsequent repayment, in the absence of co-relation of unrecorded purchases with recorded purchases in no way establishes that the purchases reflected in the bills in question were entered in the regular books. For these reasons, there is therefore, no merit in the appellant's contention that `.1.50 crores is bogus purchases and not unrecorded purchases. The action of AO in treating `.1.50 crores as unexplained investment on account of unrecorded purchases is therefore upheld."
11. Referring to the above order of the CIT (A) and various bills placed on record in support of the contentions of assessee, it was Page 8 of 33 IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai the submission of the learned Counsel that assessee hold lot of amounts to the respective parties and could not arrange funds and so on the bills issued, the said parties obtained bank loans by opening LCs and these amounts were accounted for in the books of account. He also drew our attention to the statement given by Mr. Manohar Ahuja reiterating the facts not only in the course of search proceedings, but also subsequently by way of affidavit. It was the submission that as against the outstanding amount payable to M/s HMA Interlining (P) Ltd, Super Garments, assessee had to provide accommodation bills in order to open the LCs. He therefore, submitted that neither AO nor the CIT (A) disputed the facts that the amounts received by the said companies and adjusted were in fact recorded in the books of account. It was the submission that there are no unaccounted purchases and nothing was found in the course of search also except these three bills. It was further submitted that the transactions were completed by the end of 2000 and transactions were also recorded and amounts were settled, by the time search action was taken which indicates that these are only accommodation bills and not unaccounted purchases. Further it was contended that correlation bill to bill was not feasible as explained before the authorities as assessee had to undertake discounting of bills to the extent of amount outstanding. Consolidated bills were given without there being any purchase of goods. Therefore, addition on this account is not warranted.
12. The learned Departmental Representative however, reiterated the contention of the Revenue and particularly the findings of the CIT (A) that in the absence of correlation of unrecorded purchases with regard to purchases, no way establishes that purchases reflected in the bills are entered in the regular books of account.
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13. We have considered the issue. As can be seen from the facts stated above, there is no dispute with reference to the fact that these transactions have occurred in 1999-2000 and the so called bills were discounted by the Bank and proceeds thereon were adjusted with the existing outstanding amounts in books without there being any debit or credit towards the purchase or sale. This supports assessee's contentions that these are only accommodation bills after obtaining LC facility. It is also supported by the statement of Shri Manohar Ahuja not only in the course of search but also by way of affidavit subsequently filed. The evidence on record does indicate that these are only accommodation bills for obtaining the loans and not unaccounted purchases. Just because there are certain bills available, it cannot be considered as unaccounted purchases unless there is evidence that assessee purchased the goods in question and paid the amount outside the books of account. As contended by assessee, the amounts were settled by way of LC proceeds and these were accounted for in the books of account. There is a direct correlation of payment with reference to these amounts of bills provided by assessee which are discounted by the other party and since these transactions are recorded in the books of account, we are unable to understand how the payments made through Bank account and recorded in the books of account can be considered as unaccounted purchases. These transactions in a way are recorded purchases. The Revenue is not disputing the purchases made earlier which were outstanding for which these amounts were adjusted. The mode of accounting and methodology adopted certainly do indicate that these are accommodation bills for obtaining LC facility from the bank so as to adjust the outstanding amount between the parties. Since these amounts were already recorded in the books of account and in the course of search itself, Page 10 of 33 IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai these facts are admitted by the parties involved therein, the truth therein has to be accepted as such. It is not possible to correlate one to one purchases when assessee purchased large number of goods earlier and there was outstanding amount payable to the parties for which these accommodation bills were provided. In the absence of any actual purchase and the fact that the bills were discounted in the Ban, which were accounted in the books of account takes it out of the unaccounted purchase provisions of the I.T. Act. Therefore, we are of the view that addition of `.1,50,25,864/- on the so called accommodation bills as unexplained purchases cannot be sustained. For these reasons we delete the additions so made. Ground, is therefore, allowed.
14. Ground No.2 is as under:
"The learned CIT (A) erred in confirming the addition of `.29,58,697/- (out of `.52,95,960/-) made on account of alleged unaccounted sales to M/s. Liberty Marketers"
15. Ground No.2 relates to the addition of `52,95,960/- as unaccounted sales to M/s. Liberty Marketers. The related facts in brief are that during the course of search, correspondences between assessee and M/s. Liberty Marketers and Siyaz & Zulfikar indicated sales made by assessee to the two parties, which are considered as unaccounted. AO made the addition of Rs.52,95,760/- relying on the following seized documents:
Seized Document `.)
Amount(` Party
Pages 87 to 92 of A-1 23,37,203 Siyaz & Zulfikar
Page 80 of A-1 4,72,477 Siyaz & Zulfikar
Pages 70 to 72 of A-1 1,72,565 Liberty Marketers
Pages 75 to 79 of A-1 20,13,803 Liberty Marketers
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Ashapura Garments Mumbai
16. The above seized documents, apart from other loose papers, also contain ledger accounts of assessee as appearing in the books of M/s. Liberty Marketers and Siyaz & Zulfikar and some of them bear the caption "UNACCOUNTED ASHAPURA". This led the AC to prima-facie conclusion that the transactions were unrecorded. Assessee denied any transactions with Siyaz and Zulfikar, and confirmed that it only transacted with M/s. Liberty Marketers. Photo copies of the sale bills together with the ledger account of M/s. Liberty Marketers as well as the bank statement was submitted as was a reconciliation statement of the balances in the ledger accounts of M/s. Liberty Marketers. The AO, after examination of the documents, concluded that the seized documents described the transactions as "UNACCOUNTED ASHAPURA" and as they had been seized from the premises of the assessee, the onus was on the assessee to prove otherwise, which had not been discharged satisfactorily. He therefore made the addition as above.
17. During the course of appeal proceedings before CIT(A), it was submitted that out of `52,95,965/-, transactions worth `23,37,263/- were reflected in the regular books of account of assessee relating to M/s. Liberty Marketers and relevant ledger account together with the bank statement were filed in substantiation. It was further stated that M/s. Liberty Marketers was one of the distributors of assessee and Siyaz Zulfikar was the proprietor of M/. Liberty Marketers. Whereas assessee was booking the transactions with M/s. Liberty Marketers in the name of M/s. Liberty Marketers, the latter was booking the transactions with assessee both in the name of Siyaz Zulfikar and also M/S. Liberty Marketers. Hence, there was an intermingling of bills by M/s. Liberty Marketers. As this contention had not been raised before the Page 12 of 33 IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai AO and therefore not examined by him, the matter was sent in remand. In the remand report the AO has made the following observation after examination of assessee contention as well as the relatable substantiating documents:
"In this context, it is observed that the paper seized at the time of search relates to Siyaz & Zulfikar. In contradiction to the facts on the seized materials, the assessee claims that these entries are recorded in the regular books of accounts in respect of sales to M/s. Liberty Marketers. On interrogation to explain the anomaly, there is no explanation forthcoming."
18. When confronted with the above findings in the remand report, it was submitted that the AO had wrongly not accepted assessee's contention that M/s. Liberty Marketers and Siyaz & Zulfikar were one and the same party and that Siyaz & Zulfikar was the proprietor of M/s. Liberty Marketers. It was pointed out that assessee had no transactions with Siyaz & Zulfikar but only with M/s. Liberty Marketers and therefore the name of Siyaz & Zulfikar did not appear in the books of account of assessee at all. This was substantiated by the fact that no bills raised by Siyaz & Zulfikar were found with the assessee company during the search. It was emphasized that it was M/s. Liberty Marketers, which was accounting the transactions with M/s. Ashapura Garment in two names namely M/s. Liberty Marketers and Siyaz & Zulfikar, as borne out was that bills numbers recorded in the name of Siyaz & Zulfikar by M/s Liberty Marketers in the seized documents were the same as those recorded by assessee in its books in the name of M/s. Liberty marketers and the cheque numbers noted against these bills were also matching with the cheque numbers recorded against bills entered by M/s. Liberty Marketers in the name of Siyaz & Zulfikar. It was pointed out that purchases to the extent of Rs 23,37,203/- were covered by similar entries, which had been Page 13 of 33 IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai booked by M/s Liberty Marketers in the name of Siyaz & Zulfikar but had been booked by assessee in the name of M/s. Liberty Marketers.
19. During the course of the appellate proceedings, the CIT (A) examined the transactions in detail and noticed that the transactions of `.23,37,263/- were reflected in the regular books of account and accordingly he directed AO to delete the amount after verification. Likewise, an amount of `.1,75,565/- which was the closing balance was also examined and directed to be deleted. This aspect was also accepted by the Revenue. However, the CIT (A) confirmed an amount of `.4,72,477/- and `.20,13,803/-. The balance amount was confirmed on the reason that the transactions were not reflected in assessee's books of account which were clearly stated as unaccounted purchases in the documents seized during the course of search. This part of addition is in contention now.
20. It was the submission of the learned Counsel that there are disputes between M/s Liberty Marketers and assessee and referred to the correspondence placed on record. It was his submission that those parties demanded the above amount from the assessee company by furnishing accounts in the name of Liberty Marketers and sales in the individual name who is the proprietor of Liberty Marketers and these matters were disputed. It was his contention that the said parties may be allowed to be cross examined so as to bring out the truth about actual purchases and sales or the transactions. It was further submitted as explained before the CIT (A), most of the transactions are accounted transactions and therefore, there is no question of unaccounted sales by the company so as to consider as an addition. Without prejudice to the above, it was further submitted that only profit can be brought to the tax and not the entire sales proceeds. The learned Departmental Page 14 of 33 IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai Representative however, relied on the orders of the CIT (A) who while deleting the amounts which are accounted for and correlated, confirmed only to the extent the transactions are not correlated.
21. We have considered the issue and perused records. There is no doubt that the papers were seized from assessee's premises which pertain to one of the dealers of assessee's products in Kerala. There is also no doubt that some transactions are accounted in various seized papers under the head Liberty Marketers and also sales in the name of Siyaz & Zulfikar. It was the submission that there was dispute in settling the accounts and that is why those parties produced accounts for demanding additional amount from the company and those papers were available with assessee. As the matters were disputed and contentions were not accepted, considering that no inquiry was made with the Liberty Marketers and further no examination of the actual details were undertaken by AO, we are of the opinion that the addition cannot be sustained without examining the facts of transactions between the parties. Therefore, accepting the prayer of assessee, we set aside the matter to the file of AO to make necessary inquiries with M/s Liberty Marketers and give an opportunity to assessee to cross examine, if required. In case any of the transactions are found to be unaccounted consequent to the inquiry, AO may consider the assessee alternate submission of bringing it to tax the profit element involved in the sales, as the entire sales proceeds cannot be taken as income following the decision in the case CIT vs President Industries 258 ITR 654( Guj). With these directions, the issue in Ground No.2 is restored to the file of AO for further examination of the amounts to the extent confirmed by the CIT (A).
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22. Ground No.3 is as under:
"The learned CIT (A) erred in confirming the addition of `.78,16,200/- being alleged undisclosed interest payment to Thakkar Group"
23. Ground No.3 relates to addition of `.78,16,200/- by AO as undisclosed income on account of interest paid in cash and relatable loan taken and repaid in cash. The CIT (A) confirmed only the interest portion of `.78,16,200/- which was contested in Ground No.3. The Revenue is contesting in Ground No.1 deletion of `.1.40 crores which will be dealt with in Revenue appeal. The related facts in brief are that during the course of search, data relating to "INT PAID TO THAKKAR GROUP IN CASH" was found in one of the files on the computer. The "Thakkar Group" referred to late Shri Ajay Thakkar and his family members. As Shri Ajay Thakkar had been murdered before the search, his wife, Smt. Bhavana Thakkar was shown the details. During the course of statement recorded u/s. 131, she confirmed that `70,51,963/- had been received from assessee by her late husband against amounts advanced to assessee. She however claimed ignorance of the principal amount which was given to assessee by her husband. On the basis of the statement during the course of assessment proceedings, assessee was required to substantiate whether the payment of interest was recorded for in the books of account and further, whether the loan on which interest was paid was also accounted for. AO has reproduced the entire explanation of assessee in two pages that :
(a) Assessee may be given an opportunity to cross-examine Smt. Bhavana Thakkar as according to assessee she was not aware of the related transaction as she was house wife and it is only late Shri Ajay Thakkar, who dealt with assessee.Page 16 of 33
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(b) In any case the loan could not be treated as income of assessee.
(c) It was pointed out to AO that all the transaction of late Shri Ajay Thakkar had been scrutinized by Mumbai Police, Crime Branch, Crawford Market, Mumbai in connection with the murder of late Shri Ajay Thakkar.
(d) Attention was also drawn that assessee's name did not appear in tile list of cash transaction undertaken by late Shri Ajay Thakkar and hence both the receipts of loan in cash and the payment relatable interest in cash was denied.
24. The AO, however, rejected the above contentions of assessee on the reason that according to the AO if there was no loan taken, then there was absolutely no need of maintaining the detailed accounting of interest paid in the computer. The undisputed fact was that assessee was regularly taking loans from Late Shri Ajay Thakkar Group by cheque, which were reflected in the books of account and therefore it could be ruled out, in view of the documentary evidences relating to payment of interest in cash found during the search, that cash loans also were not taken.
25. The AO has therefore concluded as under :-
"The loans which were taken in cheque from the said group was paid back by cheque. Importantly, the interest thereon was also paid by cheque only and TDS was also seen to have been deducted. Therefore, it logically follows that the interest paid in cash was for loans taken in cash only. Here it may be observed that Smt. Bhavana Thakkar has also admitted in her statement of having given cash loan to the assessee. Therefore, it is logically conclusive that interest which was paid in cash was for the cash loans taken by the assessee. It is also well known fact in the market that Shri Ajay A. Thakkar used to give cash loans to various parties in the market. Therefore, it is not out of place that the assessee had taken cash loan from tie said party."Page 17 of 33
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26. He therefore, made the addition of `70,51,963/- as interest and `1.40 crores as the principal amount repaid by working backwards.
27. During the course of the appellate proceedings before CIT(A), it was submitted that apart from seized documents found during the course of search showing payment of interest in cash, AO had also relied upon the statement of Smt. Bhavana Thakkar for making the addition as above. However, assessee had not been given an opportunity to cross-examine Smt. Bhavana Thakkar. The matter was therefore remanded to the AO with specific directions of giving assessee an opportunity to cross examine Smt. Bhavana Thakkar. Further, he was also directed to make necessary verification with the Mumbai Police, Crime Branch in respect of assessee's contention that assessee's name did not appear in the list of persons with whom Shri Ajay Thakkar had cash transactions. In the remand report dated 24.08.2007, the AO has stated that despite valid service of notice u/s. 131 on Smt. Bhavana Thakkar, there was no compliance and hence cross examination could not be given. The AO has further observed in the remand report as under :-
"I would like to reiterate that date-wise entries of payments of interest in cash on computer of the assessee are evidences beyond doubt. In fact, the onus to prove otherwise is cast on the assessee. Onus is not on the department to prove that such transactions are non-genuine. Such meticulous entries with definite amount and date can not be bogus. The investigation carried out by the Mumbai Police Crime Branch is nothing but corroborating evidence. I will humbly submit that only assessee should be asked to prove that whatever he has entered on the computer is bogus because onus is cast on the assessee only. Therefore, the addition made by the assessing officer may be treated as correct."Page 18 of 33
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28. It was AO's case therefore that the onus was on assessee to prove that the entries as above were bogus entries, which it had failed to discharge, and hence the additions had been rightly made.
29. When confronted with the above, it was submitted that it was practice with the Thakkar Group that the interest was taken upfront i.e. the interest would be deducted from the principal amount at the time of advancing the loan itself. It was for this reason that the seized document described the up-front interest as 'interest in cash' as contrasted with the usual practice of payment of interest at the end of the year. It was the contention that the document in question found on the computer was nothing but a working of the probable loans to be taken and up-front interest calculated thereon. It was further submitted that around the same dates, loans of different amounts had been taken on which up-front interest was paid to late Shri Ajay Thakkar, which was duly accounted for in the books of accounts. A chart was filed giving date wise details of the actual loans taken, up-front interest paid thereon as against the working of interest found as per seized documents as above. Further, attention was also drawn to the fact the outstanding principle and interest amount as appearing in the books of account of assessee was `3,77,17,172/- which higher than `.3,41,82,125/- worked out by the Mumbai Police after examining the books of account of late Shri Ajay Thakkar as well as other documents found with him. Therefore, it was stated that no addition called for. It was further stated with regard to the addition of Rs.1,40,83,714/- made on account of repayment of cash loan, that no documents whatsoever were found during the course of search indicating repayment of loan in cash and even Smt. Bhavana Thakkar had shown her inability to give the details of cash loans taken. It was therefore, the contention that no addition of the repayment of Page 19 of 33 IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai principal amount was called for on the basis of the details of interest paid found on the computer. Attention was drawn to the fact that even as on date, the principal amount was outstanding.
30. After considering the above submissions the learned CIT (A) confirmed the interest and deleted the principle amount by stating as under:
"4.4 I have examined the facts and considered the submission made. In so far as the addition of `.70,51,963/- is concerned, being interest as per the seized document referred to above, the assessee had filed a chart in substantiation of its contention that the seized document in question merely reflected calculation of probable interest to be paid on loans to be taken which is overleaf.
Date as Name Amount as Amount Cheque Loan Loan
per per seized as per out No. taken & Amount
seized materials books interest
materials paid as
per our
books
18.8.98 Bhavana A. Thakkar 82,600 173,250 085588 18.8.98 20,00,000
26.10.98 Bhavana A. Thakkar 31,038 72,183 086516 23.10.98 7,50,000
19.9.98 Ajay A.Thakkar 144,675 144,375 86301 7.9.98 15,00,000
4.5.99 AL Thakkar 526,000 42,000 94763 28.5.99 25,00,000
2.6.99 Ajay A.Thakkar 8,500 - - - -
7.6.99 Ajay A.Thakkar 580,000 - - - -
9.7.99 Ajay A.Thakkar 16,000 72,000 09746 10.7.99 1,500,000
13.7.99 Ajay A.Thakkar 150,000 42,000 094840 15.7.99 1,500,000
21.9.99 Ajay A.Thakkar 166,000 264,000 097921 22.9.99 3,000,000
11.10.99 Ajay A.Thakkar 165,000 264,000 125527 9.10.99 3,000,000
18.10.99 Ajay A.Thakkar 165,500 42,000 094843 15.10.99 1,500,000
8.11.99 Bhavana A.Thakkar 193,000 308,000 125704 13.11.99 3,500,000
22.12.99 Ajay A.Thakkar 193,000 190,400 125928 21.12.99 1,400,000
17.1.00 Bhavana A. Thakkar 165,500 264,000 12759 18.01.00 3,000,000
10.2.00 Ajay A.Thakkar 165,500 264,000 127701 8.2.00 3,000,000
22.2.00 Ajay A.Thakkar 165,500 264,000 127787 22.2.00 3,000,000
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24.2.00 Bhavana A.Thakkar 110,500 176,000 127803 23.2.00 2,000,000
6.3.00 Ajay A.Thakkar 276,000 220,000 127894 3.3.00 2,500,000
26.4.00 Bhavana A.Thakkar 275,500 440,000 102287 26.4.00 5,000,000
5.5.00 Bhavana A.Thakkar 275,500 440,000 102329 3.5.00 5,000,000
11.5.00 Bhavana A.Thakkar 28,000 44,000 102362 10.5.00 500,000
1.8.00 Bhavana A.Thakkar 275,500 440,000 105360 2.8.00 5,000,000
5.8.00 Ajay A Thakar 275,500 440,000 105384 4.8.00 5,000,000
12.8.00 Ajay A Thakar 275,500 440,000 105415 8.8.00 5,000,000
18.8.00 Ajay A Thakar 275,500 440,000 105435 14.8.00 5,000,000
2.9.00 Ajay A Thakar 275,500 440,000 105518 31.8.00 5,000,000
7.9.00 Ajay A Thakar 165,300 264,000 107001 6.9.00 3,000,000
9.9.00 Bhavana A. Thakkar 110,200 176,000 107017 7.9.00 2,000,000
13.9.00 Ajay A Thakar 330,500 528,000 107033 8.9.00 6,000,000
13.9.00 Ajay A Thakar 82,650 42,000 94854 15.9.00 1,500,000
20.12.00 Ajay A Thakar 551,000 440,000 130289 22.12.00 5,000,000
4.1.01 Ajay A Thakar 551,000 440,000 130332 26.12.00 5,000,000
7,051,963 7,816,208
It is assessee's contention that as against interest paid at ` 82,600/- (As per seized documents) on 18.08.1998, the actual interest paid as per books on the loan of ` 2 lacs was `.1,73,250/-. Similarly, on or near about the dates mentioned in the seized documents, loans of different amount had been taken against which up-front interest was paid by cheque to the Thakkar Group. Hence the interest actually paid was `78,16,200/- which was accounted for in the books and he seized document, reflecting payment of interest of `.70,51,963/- was only a working of probable interest to be paid. I have examined the chart as well as the contentions of assessee as also the copy of the seized document. The seized document clearly mentions "interest paid in cash". As because the seized document was found on assessee's computer, the onus is therefore squarely on assessee to prove that no interest in cash was paid. When the interest debited in the books has been paid by cheque, there is no reason why it should be described in the seized documents as "interest paid in cash" as contended by the appellant only because it is paid up- front, i.e. at the time of taking the loan itself. This Page 21 of 33 IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai coupled with the fact that Smt. Bhavana Thakkar in her statement confirmed that cash loans were also given, leads to the conclusion that assessee's contention merits no consideration. The addition of `.78,16,200/- is therefore confirmed.
In so far as the addition of Rs.1.40 crores is concerned, being the addition on account of repayment of the principal amount, it is clear from the assessment order that the AO has made a back calculation from the amount of interest to arrive at the figure of Rs.1.40 crores. It is not the AO's case therefore that any documents were found during the search indicating repayment of loan in cash. On the contrary, the ledger account of the Thakkar group as appearing in the books of account the appellant shows the outstanding loan amount at `3.77 crores, which being subjudice, is outstanding even as on date. It is settled law that additions in search assessments have to be limited to documents found during the search and statements recorded. In the absence of any documentary evidence substantiating repayment in cash of the loan of ` 1.40 crores, and on the basis of the fact that the AO has made the addition of this amount on the basis of surmises, the addition of Rs.1.40 crores is deleted".
31. The learned Counsel referring to the table considered by the CIT (A) submitted that even though there were amounts said to be paid in cash what exactly happened was that the said party deducts amount upfront but, all transactions were by cheque only. There are no cash loans, nor there are any payments in cash. What the documents seized from assessee's computer was only calculations of up-front interest on the loan amount. It was stated that assessee had borrowed funds from the said party and was paying amounts by way of cheques to the said party and there is no cash transactions at all. It was further submitted that crime branch has made inquiry and the matter was sub-judice. Therefore, addition of amounts without any findings cannot be sustained. It was further Page 22 of 33 IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai submitted that the cross examination was not allowed and books of account of Mr.Ajay Thakkar were not verified by AO. It was submitted that some of the loans were taken from Smt. Bhavana Thakkar as per the seized documents, amounts supposed to have been received by her. Even inquiry from her has not been made. Therefore, it was submitted that the matter may be re-examined by AO.
32. After hearing the learned Departmental Representative, we are of the opinion that this issue requires re-examination. As far as the amounts of loan taken, they are tallying with the dates and these amounts are taken by way of cheques. There was also interest amount paid through books by way of cheques to the extent of `.78,16,208/-. In order to examine whether there was any unaccounted interest paid in cash over and above the accounted portion, an attempt was made by us to examine the ratios, which are not tallying at all. In case unaccounted interest if at all was demanded, it will be in particular ratio of ½ or one time or two time of the interest admitted. For example, if the interest was to be accounted at 12% and the amounts were borrowed at 18%, then the interest accounted for in the books will be 12% and the amounts that will be paid in cash was to be at 6%. Like wise, it can be 1:1 ratio, if the interest is at 24% of rate of interest (12:12 or 18:06). However, there is no such correlation available with payments as examined from the table. Therefore, it cannot be stated that there was unaccounted payment of interest in cash over and above the amounts already accounted in the books. There seems to be plausible explanation of upfront deduction of interest which could have been adjusted in the subsequent payment of interest by way of cheques. However, this aspect cannot be decided in the absence of verification from the records available with Mr. Ajay Thakkar or Page 23 of 33 IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai Smt. Bhavana Thakkar. Since the matters are investigated by the Crime Department, they also might be having certain documents evidencing the payments in cash. Therefore, in the interest of justice, we are of the opinion that this aspect require further examination and correlation with the records available with the Crime Branch and the Income Tax records of the above two persons. AO is directed to do the needful inquiry and decide the issue after giving an opportunity to assessee. With these directions the issue was restored to the file of AO for fresh examination as directed above. Ground No.3 is accordingly allowed for statistical purposes.
33. Ground No.4 is as under:
"The learned CIT (A) erred in confirming the addition of `.63,46,000/- being the alleged unaccounted sales relating to Hyderabad Depot".
34. The related facts in brief are that during the course of search, the backup of the computer was taken from Hyderabad depot of assessee, which contained a statement giving quantitative details of sales and sales returns, as well as the balance of stock at the Hyderabad depot of assessee. On analysis, AO found that sales of 6346 pairs of jeans as per the statement, was not recorded in the books of assessee. The AO has reproduced the reply of assessee in response to the show cause as to why addition not be made on account unaccounted sale in the assessment order, the gist of it being as under :-
(a) The statement in question was merely reflecting stock transfer to Mumbai to Hyderabad and not actual sales. Copies of challans showing that 6346 pairs of jeans had been sent as samples from Mumbai to Hyderabad were filed in substantiation.Page 24 of 33
IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai
(b) It was explained that it was in order to capture the market in Hyderabad that such a large number as 6246 pairs of jeans had been sent as samples.
(c) A without prejudice contention was also made namely that even if the samples sent were to be treated as sales, the statement showed sales only of 269S pieces out of 6246 pieces. Further copies of random sales bills were filed to substantiate that the average sale price per pair of jeans as not ` 1,000/- as estimated by the AO, but only ` 500/- per pair.
35. The CIT (A) decided the issue as under:
"5.3 I have gone through the facts as well as the contentions. It is seen that the seized document in question, which has also been reproduced in the assessment order on page-19 describes the statement as "details of sales, purchase and stock from October 03. to July 02". It is also correct that the said statement nowhere mentions the jeans to have been received as samples. On the contrary, the statement gives bill-wise and challan-wise details of purchases, sales and the balance stock. Even in the statement tallying the stock, there is no mention of word "sample". Therefore, the contention that the goods represented sample does not merit consideration. It is also an disputed fact there is no entry in the books of the appellant even of the purported transfer of stock as samples to the Hyderabad depot. The AO therefore has rightly observed in the order as under :-
"once the goods are transferred without duly accounting in the books of accounts of M/s. Ashapura Garments Pvt. Ltd., in Mumbai office the whole quantity becomes unaccounted sales of the assessee company irrespective of the fact whether or not the whole quantity has been sold or not from the Hyderabad Depot."
It is also a fact that the retail price per pair of jeans is `.1,000/-Therefore, on facts, the addition of `.63,46,000/- as unaccounted sales is confirmed".
Page 25 of 33IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai
36. Drawing our attention to page 120 of the statement of assessee in the course of search proceedings and also the order of AO, it was submitted that assessee has provided necessary challans in support of transfer of goods from Mumbai to Hyderabad and these were available in the stock of the Branch. Since it is only a stock transfer from Head of office to the Branch Office, the same cannot be considered as unaccounted sales. It was further submitted that the same statement also has reconciliation statement with difference of stock of one item. It was assessee's contention that the Branch was opened in October, 2001 and in order to capture the market, large number of goods were sent as samples for display in various show rooms, which was not taken as sales. Learned Counsel drew our attention to the sales statement made therein to submit that out of 6346 No. of items transferred to Branch the Branch accounted sales of 2698 Nos. only with 1102 returned. There was also purchase return from the Branch to Head Office. Even this aspect was also not taken into consideration by AO. It was his submission that transfer to Branch cannot be considered as unaccounted sales. However, without prejudice it was submitted that if at all any addition is to be considered that can only be considered on the items shown as sales that is 2698 Nos., the cost of which at the company price is only `.500/- and not `.1000/- as adopted by AO as a retail price. It was submitted that the addition can be restricted to the above amount as admitted by assessee in the course of the assessment proceedings. It was also further submitted that only profit can be brought to tax and not the entire sales proceedings.
37. We have considered the issue. The dispute is with reference to the goods sent to Branch considered as unaccounted sales of the HO on the basis of the statement obtained from the Branch office.
Page 26 of 33IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai As per the statement itself, assessee has transferred 6346 Nos. to the Branch which was admitted to be the samples sent by way of challans so that there is no sales tax on the above goods. The said statement itself indicate return of goods of 330 and net purchases at 24,830. Against the sales column there are total sales of 17,738, returns of 1102 which include sales of challaned items at 2698. There is a stock reconciliation of the items of 7092 Nos. available with the Branch. So it cannot be considered that the entire goods sent from the HO to the Branch were unaccounted sales. So AO and the CIT (A) considered wrongly 6346 Nos. as goods sold which were transfers intra-company from HO to Branch Office. Therefore, addition of the amount on the above Nos. is not correct. What the statement does confirm was the sales, out of the challaned items, at 2698. To that extent even assessee admitted that this amount can be considered as sales in the course of the assessment proceedings itself. With reference to the cost of the items there is no individual cost of items mentioned and it was the contention of assessee that the average price of per piece would be around `.500/- and the price taken by AO was the retail price which has a margin for the retailer also. Therefore, considering the average price of `.500/- per piece on 2698 pieces considered to have been sold, we confirm the addition to that extent and delete the balance. It was assessee's contention that only profit can be brought to tax and not the entire sale proceeds. These arguments cannot be accepted as transfer of goods was out of the existing stock manufactured in the routine course that were accounted for. It is admittedly the sales, out of goods sent through challans, which were not accounted for. So the entire sales proceeds become income of assessee. In view of this we confirm the addition on 2698 pieces at `.500/- per piece at Page 27 of 33 IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai `.13,49,000/- . AO is directed to make only that much addition and delete the balance. This ground is partly allowed.
38. Ground No.5 raised by assessee is as under:
"The learned.CIT (A) erred in confirming the addition of `.5,01,000/- being the alleged unaccounted stock at Hyderabad Depot".
39. This Ground pertains to addition of `.5,01,000/- being allegedly unaccounted stock at Hyderabad Depot relating to M/s Prem Trading Co. The related facts in brief are that during the proceedings, excess stock of 501 pairs of jeans was found at the Hyderabad depot which in the name of M/s. Prem Trading Co. and unaccounted in assessee's books. It was assessee's contention that the stock found did not relate to assessee but was counterfeit being sold by one of the staff at Hyderabad, using the brand name of the company and the company had registered a legal complaint with the Trade & Registry Department much before the date of search. As this fact was not brought out before the AO, the matter was sent in remand before the AO. In the remand report the AO has stated that as the stock was found in the premises of the assessee and the same was not recorded in the books of account, there was no merit in the contention of assessee. The CIT (A) confirmed the same.
40. It was submitted by the learned Counsel that in the transactions with the said Prem Trading Company was considered by AO as unaccounted. The only addition is made on account of excess stock found in the course of survey on 13/03/2003 whereas the search in the premises occurred on 12/12/2002 and the block period ends on 12/12/2002. It was the preliminary objection of the learned Counsel that the stock found consequent to the survey on 12/03/2003 cannot be considered as unaccounted stock of the company in the block period. Further it was submitted that Page 28 of 33 IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai assessee had already filed a complaint against unknown persons before the Court of Metropolitan Magistrate vide complaint dated 31/5/2002 i.e. before the search and contended before AO that some of the employees might be indulging in counterfeit sales and so the assessee company cannot be held responsible. The learned Departmental Representative however, relied on the orders of AO and the CIT (A).
41. After considering the rival arguments, we are of the opinion that the addition cannot be sustained. First of all even though there are certain alleged seized documents pertaining to Prem Trading Co no addition was made in the assessment order nor there was any discussion about unaccounted transactions with the said person. So just because there are certain papers, seized in the course of search it does not automatically lead to any addition. It is a fact that unaccounted stock was found in the course of survey on 13/03/2003 and the block period u/s 158BC ends on 12-12-2002. Therefore, unaccounted stock found subsequent to the date of search cannot be considered in the block assessment proceedings and may have to be considered under the regular assessment proceedings. As already stated since seized documents did not lead to any addition separately with reference to Prem Trading Co., the addition of the unaccounted stock of 501 pieces at `.1000/- cannot be made as an addition in the block assessment. For these reasons the amount was deleted. Assessee's ground is allowed.
42. Ground No.6. Assessee raised the following ground:
"The learned CIT (A) erred in confirming the addition of `.5,00,000/- and `.5,00,000/- being the alleged unexplained cash credit in the name of M/s Manisha Trading Company and M/s Ashok Textiles respectively".
43. AO has asked assessee to furnish evidences with reference to unsecured loans obtained by the assessee company to an extent of Page 29 of 33 IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai `.29.50 lakhs. Confirmations were filed by the parties. AO noticed that there were cash deposits in their accounts before the advances were made to assessee and in the absence of genuineness of the loan, he brought to tax an amount of `.29.50 lakhs as undisclosed income of assessee. Consequent to the further evidences filed, remand report was asked from AO and after considering the remand report and documents filed, the CIT (A) considered that credits from M/s Mehta Engineering Company and M/s Judicial Member Mehta (HUF), M/s Arihant Enterprises were accepted as genuine whereas the loans received from M/s Manisha Trading Co. and M/s Ashok Textiles were not accepted. To that extent the cash credits were confirmed.
44. It was the contention of assessee's Counsel that all these cash credits were available in the books of account and there was no incriminating material found during search and assessee had furnished the necessary details before AO. The objection raised by the learned Counsel is that since there is no incriminating material, the addition cannot be made in the block assessment. He relied on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Vikaram Joshi, 256 ITR 129. The Departmental Representative however, relied on the orders of the CIT (A).
45. We have considered the issue. As far as the examination of credits are concerned, these credits are found in the books of account and is a subject matter of inquiry in the regular assessments. In the case of CIT vs. Vikram Joshi (supra), the Hon'ble Bombay High Court has while dismissing the Revenue question, held that other questions raised by the Revenue are based on transactions which could not be said to be undisclosed transactions falling under section 158BC of the I.T. Act because the transactions in question were disclosed in returns which were Page 30 of 33 IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai subject matter of regular assessment. They are to be assessed in the regular assessment and not in the block assessment. Respectfully following the same, since credits in question were accounted in the books of account, we are of the opinion that in the absence of incriminating material in the course of search, these cannot be examined in the proceedings under section 158BC. Therefore, assessee's ground on this issue is upheld. AO is free to take necessary action in the regular assessment as per law. Ground No.6 is allowed.
46. Ground No.7 (additional Ground) is with reference to giving benefit of telescoping in respect of additions made on income basis vis-à-vis addition made on expenditure/investment basis. This issue arises as assessee has not admitted any undisclosed income in the block. But AO made an addition of `.5,26,74,490/- in the assessment order. Some of the issues which may give rise to addition may pertain to income/ expenditure. It was the contention that the benefit of telescoping should be given in the block assessment. This aspect requires examination of the ultimate addition sustained after the orders of the appellate authorities. Since Ground Nos. 2 and 3 are restored to the file of AO for fresh examination and Ground No.4 was partly confirmed, ultimate examination of telescoping benefit has to be done by AO after deciding the issues afresh. Therefore, AO is directed to consider this aspect at the time of giving effect to the order/re-assessment orders. Accordingly, the ground is allowed for statistical purposes.
IT(SS) No.49/Mum/08:
47. The Revenue raised the following three grounds:
"(i) On the facts and in the circumstances of the case and in law, the learned CIT (A) has erred in ignoring the provisions of section 158BB(1) inserted by the Finance Page 31 of 33 IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai Act, 2002 with retrospective effect from 01.07.1995 which provide that:
The undisclosed income of the block period shall be the aggregate of the total income of the previous year falling within the block period computed (in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with AO and relatable to such evidence)...
(ii) On the facts and in the circumstances of the case and in law, the learned CIT (A) has erred in deleting the addition of `.1,40,83,713/- made on account of repayment of principal component of loan in cash.
(iii) On the facts and in the circumstances of the case and in law the learned CIT (A) has erred in deleting the addition made by AO under section 68 on account of unexplained cash credit (and interest thereon) from M/s Mehta Engg. Co., M/s J.M. Mehta, HUF and M/s Arihant Enterprises without appreciating the fact that the onus cast on assessee to prove the credit worthiness of the creditors and the genuineness of the transactions was not discharged by assessee at any stage of the proceedings before AO".
48. Ground No.(i) is general in nature.
49. Ground No.(ii) pertains to the deletion of `.1,40,83,713/- made on account of repayment of principal component of loan in cash. This aspect was discussed vide Ground No.3 in assessee's appeal. Since there is no incriminating material that any loan was obtained in cash, the order of the CIT (A) does not require any interference. Therefore, the ground is rejected. However, we make it clear that in case AO comes to know of any loans obtained in cash consequent to his inquiry directed in Ground No.3, he can consider the same while completing the re-assessment. With these directions the Revenue ground is rejected.
50. Ground No.(iii) pertain to deletion of addition made under section 68 on account of unexplained cash credits from M/s Mehta Page 32 of 33 IT(SS) No.41 & 49 of 2008 Ashapura Garments Mumbai Engg. Co. J.M. Mehta (HUF) and M/s Arihant Enterprises. The CIT (A) has already examined this issue and deleted the amounts. Since there is no incriminating materials involved with reference to cash credits and since these credits are available in the books of account recorded by the time search took place, the additions per se cannot be considered in the block assessment. On these reasons, the amounts confirmed by the CIT (A) also stands deleted in Ground No.6 in assessee appeal. Therefore, there is no need to consider the Revenue ground as both legally and factually the amounts cannot be considered in block assessment. Therefore, the ground is rejected.
51. In the result, appeal filed by the assessee is partly allowed and the Revenue appeal is dismissed.
Order pronounced in the open court on 4th May, 2012.
Sd/- Sd/-
(D.K.Agarwal) (B. Ramakotaiah)
Judicial Member Accountant Member
Mumbai, dated 4th May, 2012.
Vnodan/sps
Copy to:
1. The Appellant
2. The Respondent
3. The concerned CIT(A)
4. The concerned CIT
5. The DR, "H" Bench, ITAT, Mumbai
By Order
Assistant Registrar
Income Tax Appellate Tribunal,
Mumbai Benches, MUMBA
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