Mahashian Di Hatti Ltd., New Delhi vs Assessee on 20 May, 2003

[Cites 31, Cited by 0]

Income Tax Appellate Tribunal - Delhi

Mahashian Di Hatti Ltd., New Delhi vs Assessee on 20 May, 2003

          IN THE INCOME TAX APPELLATE TRIBUNAL
                DELHI BENCH 'E': NEW DELHI

      BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND
         SHRI K.D. RANJAN, ACCOUNTANT MEMBER

                 I.T.A.Nos.4576, 4577 & 4578/Del/2010
             Assessment Years : 2005-06, 2006-07 & 2007-08

M/s. Mahashian Di Hatti Ltd.,            Dy. Commissioner of Income-tax,
9/44, Kirti Nagar Industrial Area, Vs.   Central Circle 25, New Delhi.
New Delhi.
PAN: AAACM4165F

  (Appellant)                                     (Respondent)

                Appellant by : Shri Vinod Kumar Bindal &
                                Ms. Sweety Kothari, CAs.
                Respondent by : Shri Raj Tandon, CIT-DR &
                                Shri Peeyush Jain, CIT-DR (TP)

                                ORDER

PER K.D. RANJAN, ACCOUNTANT MEMBER

These appeals by the assessee for Assessment Years 2005-06, 2006- 07 and 2007-08 arise out of the orders of Assessing Officer passed under section 153A/143(3) read with section 144C of the Income-tax Act, 1961 (the Act). The grounds raised by the assessee are reproduced as under:-

"ITA No.4576/Del/2010 (A.Y. 2005-06):

1. The Assessing Authorities including the Dispute resolution Panel (DRP) erred in law and on facts and also by ignoring the evidences on record in making an addition of Rs.11,00,00,000/-

on account of alleged undisclosed profit though no evidence of any nature whatsoever was found at the time of search showing 2 I.T.A.Nos.4576, 4577 & 4578/Del/2010 that the appellant was engaged in any activities outside the books of account. Thus, the addition made on surmises and conjectures must be deleted.

2. The Assessing Authorities including the DRP erred in law and on facts in making an addition of Rs.21,66,50,451/- on account of undisclosed speculation business income though no evidence of any nature whatsoever was found at the time of search showing that the appellant was engaged in such activities. Thus, the addition made on surmises and conjectures must be deleted.

3. The Assessing Authorities including the DRP erred in law and on facts in making a disallowance of Rs.2,38,70,600/- out of the Advertisement and Publicity Expenses on surmises and conjectures without appreciating the exigencies of the business. Thus, the addition made on surmises and conjectures must be deleted.

4. The Assessing Authorities including the DRP erred in law and on facts in making an addition of Rs.1,13,71,759/- on account of alleged inflation in purchase price of raw spices by ignoring the evidences on record. Thus, the addition made on surmises and conjectures must be deleted.

5. The Assessing Authorities including the DRP erred in law and on facts in making the following additions towards so- called `unproved' transactions based on some material seized from a third party from his premises while ignoring the evidence on record:

Asstt. Order       Seized Material Reference      Amount of
Para No.                                        Addition (Rs.)

Para 11.5          Pages No.51 & 52 of              54,58,600/-
                   Annexure A-4/O-18

Para 11.6.1        Pages No.14-22 of                35,99,840/-
                   Annexure A-4/O-18
                               3
                                               I.T.A.Nos.4576, 4577 & 4578/Del/2010

Thus, the above additions made on surmises and conjectures without confronting the statements recorded at the back of the assessee and without allowing any opportunity of cross examination and which are otherwise also double addition must be deleted.

6. The Assessing Authorities including the DRP erred in law and on facts in making the addition of Rs.37,35,000/- on account of alleged unexplained investment by way of donations for construction of school building at Byadgi in Karnataka made by an independent assessable Trust, while ignoring the explanation on record. Thus, the addition must be deleted.

7. The Assessing Authorities including the DRP erred in law and on facts in making the addition of Rs.44,98,279/- towards unexplained investment in construction of school building at Byadgi in Karnataka of school building at Byadgi in Karnataka on the basis of DVO report, while being fully aware but ignoring that the ownership of the said school vested with an independent assessable Trust and, therefore, no such addition could be made in the hands of the appellant. Thus, the addition made on surmises and conjectures must be deleted.

8. The Assessing Authorities including the DRP erred in law and on facts in making the addition of Rs.52,91,986/- on account of Arm's Length Pricing that too on an export turnover of Rs.1,66,69,806/- to the Associated Enterprises, which is challenged on the following grounds:

a. The transfer pricing order computing the arm's length price at a higher figure than the actual figures passed by the Transfer Pricing Officer, DCIT, TPO 1(6), New Delhi is bad in law and on facts as the same was passed without approval of Director of Income-Tax (Transfer Pricing) in spite the CBDT Instruction No.3 dated 20/5/2003 rendering the said order void ab initio.

b. The transfer pricing proceedings initiated and undertaken are bad in law and on facts for the specific reasons 4 I.T.A.Nos.4576, 4577 & 4578/Del/2010 mentioned below, also communicated to the TPO vide letter dated 12/01/09, besides other reasons submitted later on:

i) The proceedings initiated referred to some name, which was a non-existent assessee.

      ii)    The same did not refer to each transaction for
             which arms length price was to be determined.
      iii)    The same was referred only for the sake of seeking
             extension of the limitation to complete the
             assessment by 31/12/08.
      iv)    The reference was also not enterprises specific.
      v)     The international transactions were of a small
             amount of which no reference was desired as per
             the CBDT instructions.

c. The international transactions were of a small amount of which no reference was desired as per the CBDT instructions. The transfer pricing order computing the arm's length price at a higher figure than the actual figures is bad in law and on facts as the same does not consider the facts that the entire arm's length sales were made to wholly owned subsidiaries of the appellant and those subsidiaries were working as an extension of the appellate to further sales and not as a competitor of the overseas buyers; and despite that the said subsidiaries were not selling produce of any other person and all the expenses of those subsidiaries were to be met by them out of margin to be retained from the sales as per the directions of the Reserve Bank of India.

d. The addition is not only based on some unrealistic average rate not of each product but of boxes of all the products having different values but also the same is incorrect as several items exported were not at all comparable. Thus, the same must be deleted.

e. The Transfer Pricing Officer/Assessing Officer/DRP has erred in law and on facts in ignoring that pricing of exports to each country varies due several factors, e.g., packing, fumigation, shelf-life, local food control regulations, etc. 5 I.T.A.Nos.4576, 4577 & 4578/Del/2010 Further no consideration has been taken while computing the arms length price for the quantity supplied to AEs and non-AEs. It is well known that the rate of supplies for large quantities is always lower than the rates at which supplies of small quantities are made. The AEs were supplied a very large quantity as compared to the other buyers. In nutshell the entire exercise to compute the impugned arm's length price and the alleged difference by the TPO is incorrect and must be struck down.

f. The Transfer Pricing Officer/Assessing Officer/DRP has erred in law and on facts in rejecting the TNM Method of computing the exports price and substituting the same with CUP though in the case of the appellant TNMM is the most suitable method considering the factors and circumstances of the wholly owned subsidiaries overseas who are working to establish new market overseas for the products of the appellant and all such expenses were the sole responsibility of the appellant.

9. The directive order dated 31/08/10 of the DRP is bad in law and on facts as it does not mention the submissions of the appellant on all the issues rather contains an incorrect averment that no argument or information was submitted by the appellant. Thus, the same has to be annulled.

10. The assessment order framed without allowing an opportunity to cross examine the evidence collected and statements recorded at the back of the appellant is bad in law and must be annulled."

ITA No.4577/Del/2010 (A.Y.2006-07):

1. The Assessing Authorities including the Dispute resolution Panel (DRP) erred in law and on facts and also by ignoring the evidences on record in making an addition of Rs.14,00,00,000/- on account of alleged undisclosed profit though no evidence of any nature whatsoever was found at the time of search showing that the appellant was engaged in any activities outside the 6 I.T.A.Nos.4576, 4577 & 4578/Del/2010 books of account. Thus, the addition made on surmises and conjectures must be deleted.

2. The Assessing Authorities including the DRP erred in law and on facts in making an addition of Rs.25,01,66,669/- on account of undisclosed speculation business income though no evidence of any nature whatsoever was found at the time of search showing that the appellant was engaged in such activities. Thus, the addition made on surmises and conjectures must be deleted.

3. The Assessing Authorities including the DRP erred in law and on facts in making a disallowance of Rs.2,11,27,739/- out of the Advertisement and Publicity Expenses on surmises and conjectures without appreciating the exigencies of the business. Thus, the addition made on surmises and conjectures must be deleted.

4. The Assessing Authorities including the DRP erred in law and on facts in making an addition of Rs.1,25,43,293/- on account of alleged inflation in purchase price of raw spices by ignoring the evidences on record. Thus, the addition made on surmises and conjectures must be deleted.

5. The Assessing Authorities including the DRP erred in law and on facts in making the addition of Rs.12,36,300/- towards inflation in expenses based on Pages No.14 - 22 of Annexure A-4/O-18 of the material seized from a third party while ignoring the submission. Thus, the above addition made on surmises and conjectures and moreover being double addition must be deleted.

6. The Assessing Authorities including the DRP erred in law and on facts in making the addition of Rs.50,00,000/- towards unexplained investment on account of contribution of capital in a partnership firm made by the two directors of the appellant company, without any evidence but merely alleging that the same was made by the appellant-company on their behalf and 7 I.T.A.Nos.4576, 4577 & 4578/Del/2010 while ignoring the evidence available on record. Thus, the addition so made on surmises and conjectures must be deleted.

7. The Assessing Authorities including the DRP erred in law and on facts in making the addition of Rs.51,44,224/- towards unexplained investment in construction of school building at Byadgi in Karnataka on the basis of DVO report, while being fully aware but ignoring that the ownership of the said school vested with an independent assessable Trust and, therefore, no such addition could be made in the hands of the appellant. Thus, the addition so made on surmises and conjectures must be deleted.

8. The Assessing Authorities including the DRP erred in law and on facts in making the addition of Rs.1,12,52,632/- on account of Arm's Length Pricing that too on an export turnover of Rs.4,05,75,626/- to the Associated Enterprises, which is challenged on the following grounds:

a. The transfer pricing order computing the arm's length price at a higher figure than the actual figures passed by the Transfer Pricing Officer, DCIT, TPO 1(6), New Delhi is bad in law and on facts as the same was passed without approval of Director of Income-Tax (Transfer Pricing) in spite the CBDT Instruction No.3 dated 20/5/2003 rendering the said order void ab initio.

b. The transfer pricing proceedings initiated and undertaken are bad in law and on facts for the specific reasons mentioned below, also communicated to the TPO vide letter dated 12/01/09, besides other reasons submitted later on:

i) The proceedings initiated referred to some name, which was a non-existent assessee.

ii) The same did not refer to each transaction for which arms length price was to be determined.

iii) The same was referred only for the sake of seeking extension of the limitation to complete the assessment by 31/12/08.

I.T.A.Nos.4576, 4577 & 4578/Del/2010

iv) The reference was also not enterprises specific.

v) The international transactions were of a small amount of which no reference was desired as per the CBDT instructions.

c. The transfer pricing order computing the arm's length price at a higher figure than the actual figures is bad in law and on facts as the same does not consider the facts that the entire arm's length sales were made to wholly owned subsidiaries of the appellant and those subsidiaries were working as an extension of the appellate to further sales and not as a competitor of the overseas buyers; and despite that the said subsidiaries were not selling produce of any other person and all the expenses of those subsidiaries were to be met by them out of margin to be retained from the sales as per the directions of the Reserve Bank of India.

e. The Transfer Pricing Officer/Assessing Officer/DRP has erred in law and on facts in ignoring that pricing of exports to each country varies due several factors, e.g., packing, fumigation, shelf-life, local food control regulations, etc. Further no consideration has been taken while computing the arms length price for the quantity supplied to AEs and non-AEs. It is well known that the rate of supplies for large quantities is always lower than the rates at which supplies of small quantities are made. The AEs were supplied a very large quantity as compared to the other buyers. In nutshell the entire exercise to compute the impugned arm's length price and the alleged difference by the TPO is incorrect and must be struck down.

f. The Transfer Pricing Officer/Assessing Officer/DRP has erred in law and on facts in rejecting the TNM Method of computing the exports price and substituting the same with 9 I.T.A.Nos.4576, 4577 & 4578/Del/2010 CUP though in the case of the appellant TNMM is the most suitable method considering the factors and circumstances of the wholly owned subsidiaries overseas who are working to establish new market overseas for the products of the appellant and all such expenses were the sole responsibility of the appellant.

10. The assessment order framed without allowing an opportunity to cross examine the evidence collected and statements recorded at the back of the appellant is bad in law and must be annulled.

ITA No.4578/Del/2010 (A.Y. 2007-08):

1. The Assessing Authorities including the Dispute resolution Panel (DRP) erred in law and on facts and also by ignoring the evidences on record in making an addition of Rs.9,02,38,560/- on account of alleged undisclosed profit though no evidence of any nature whatsoever was found at the time of search showing that the appellant was engaged in any activities outside the books of account. Thus, the addition made on surmises and conjectures must be deleted.

2. The Assessing Authorities including the DRP erred in law and on facts in making an addition of Rs.30,00,00,000/- on account of undisclosed speculation business income though no evidence of any nature whatsoever was found at the time of search showing that the appellant was engaged in such activities. Thus, the addition made on surmises and conjectures must be deleted.

3. The Assessing Authorities including the DRP erred in law and on facts in making a disallowance of Rs.2,46,82,361/- out of the Advertisement and Publicity Expenses on surmises and 10 I.T.A.Nos.4576, 4577 & 4578/Del/2010 conjectures without appreciating the exigencies of the business. Thus, the addition made on surmises and conjectures must be deleted.

4. The Assessing Authorities including the DRP erred in law and on facts in making an addition of Rs.1,32,63,588/- on account of alleged inflation in purchase price of raw spices by ignoring the evidences on record. Thus, the addition made on surmises and conjectures must be deleted.

5. The Assessing Authorities including the DRP erred in law and on facts in making the addition of Rs.15,00,000/- towards inflation in expenses based on Pages No.14 - 22 of Annexure A-4/O-18 of the material seized from a third party while ignoring the submission. Thus, the above addition made on surmises and conjectures and moreover being double addition must be deleted.

6. The Assessing Authorities including the DRP erred in law and on facts in making the addition of Rs.12,46,90,000/- towards unexplained cash transactions noted in the seized Page No.40 of the Annexure A-3/O-2, while ignoring the evidence furnished and submissions made that the impugned page contained the bank transactions which were duly accounted for in the regular books of account even prior to the search. Thus, the addition so made on surmises and conjectures must be deleted.

7. The Ld. Assessing Authorities including the DRP erred in law and on facts in making the addition of Rs.11,00,00,000/- towards some hypothetical discrepancy in closing stock and business transactions, mainly on the basis of surrender taken from a director at the time of search in an unethical manner, which on the basis of evidence was a coercive and which was retracted immediately thereafter, and also while neither bringing on record any physical inventory of stock, if any, prepared during the course of search by the visiting revenue personnel nor pointing out any specific instances of the alleged discrepancies in the business transactions. Thus, the addition so made on surmises and conjectures must be deleted.

I.T.A.Nos.4576, 4577 & 4578/Del/2010

8. The Assessing Authorities including the DRP erred in law and on facts in making the addition of Rs.73,000/- towards unexplained advances on the basis of some statement of an accountant of some other firm that too in its case and not of the appellant recorded without providing a copy of the same to the appellant and also without affording opportunity of cross- examination of the said person to it. Thus, the said addition is bad in law and must be deleted.

9. The Assessing Authorities including the DRP erred in law and on facts in making the addition of Rs.5,14,66,456/- on account of Arm's Length Pricing that too on an export turnover of Rs.8,89,40,732/- to the Associated Enterprises, which is challenged on the following grounds:

a. The transfer pricing order computing the arm's length price at a higher figure than the actual figures passed by the Transfer Pricing Officer, DCIT, TPO 1(6), New Delhi is bad in law and on facts as the same was passed without approval of Director of Income-Tax (Transfer Pricing) in spite the CBDT Instruction No.3 dated 20/5/2003 rendering the said order void ab initio.

b. The transfer pricing proceedings initiated and undertaken are bad in law and on facts for the specific reasons mentioned below, also communicated to the TPO vide letter dated 12/01/09, besides other reasons submitted later on:

i) The proceedings initiated referred to some name, which was a non-existent assessee.

ii) The same did not refer to each transaction for which arms length price was to be determined.

iii) The same was referred only for the sake of seeking extension of the limitation to complete the assessment by 31/12/08.

iv) The reference was also not enterprises specific.

I.T.A.Nos.4576, 4577 & 4578/Del/2010

v) The international transactions were of a small amount of which no reference was desired as per the CBDT instructions.

e. The Transfer Pricing Officer/Assessing Officer/DRP has erred in law and on facts in ignoring that pricing of exports to each country varies due several factors, e.g., packing, fumigation, shelf-life, local food control regulations, etc. Further no consideration has been taken while computing the arms length price for the quantity supplied to AEs and non-AEs. It is well known that the rate of supplies for large quantities is always lower than the rates at which supplies of small quantities are made. The AEs were supplied a very large quantity as compared to the other buyers. In nutshell the entire exercise to compute the impugned arm's length price and the alleged difference by the TPO is incorrect and must be struck down.

f. The Transfer Pricing Officer/Assessing Officer/DRP has erred in law and on facts in rejecting the TNM Method of computing the exports price and substituting the same with CUP though in the case of the appellant TNMM is the most 13 I.T.A.Nos.4576, 4577 & 4578/Del/2010 suitable method considering the factors and circumstances of the wholly owned subsidiaries overseas who are working to establish new market overseas for the products of the appellant and all such expenses were the sole responsibility of the appellant.

10. The directive order dated 31/08/10 of the DRP is bad in law and on facts as it does not mention the submissions of the appellant on all the issues rather contains an incorrect averment that no argument or information was submitted by the appellant. Thus, the same has to be annulled.

11. The assessment order framed without allowing an opportunity to cross examine the evidence collected and statements recorded at the back of the appellant is bad in law and must be annulled."

2. The facts of the case stated in brief are that the assessee is a private limited company and is engaged in manufacturing of edible spices. The company has large network of associated concerns that are engaged in procurement of raw material for the manufacturing of products. The assessee had network of distributors/super stockiest for all India distribution of its products. The products portfolio of the company had also diversified and several new products such as Dant Manjan and Agarbatties are being manufactured. Another company M/s. Super Delicacies Pvt. Ltd. had been set up to manufacture these new products. The company had also been exporting its products to foreign countries such as Europe and USA. Its 14 I.T.A.Nos.4576, 4577 & 4578/Del/2010 overseas business was looked after by 100% subsidiaries namely M/s. Mark Spices Ltd, UK and M/s. R. Pure Agro Ltd. (UAE).

3. A search & seizure operation was carried out on the assessee company on 22nd November, 2006. During the course of search the business premises of the assessee company at MDH House 9/44, Kirti Nagar, New Delhi; 216, Udyog Vihar, Phase-I, Gurgaon; and 139, Udyog Vihar, Phase-I, Gurgaon were searched. The residences of the directors at E-6/6, Vasant Vihar, New Delhi was also searched. For Assessment Years 2005-06, 2006-07 and 2007-08 the matter was referred to the Transfer Pricing Officer for determination of Arm's Length Price in respect of export by the assessee to its associated concerns.

4. The first issue which is common in all the three years under consideration relates to confirming the undisclosed profit on account of alleged undisclosed sales and purchases. During the course of search a bunch of loose papers were seized (Marked as Annexure A-9/O-1) from the business premises of M/s. MDH Ltd. at 9/44, Kirti Nagar Industrial Area, New Delhi. As per these papers Pages 48 to 57 were the printed papers titled "All India Sales Report" of MDH and the sales month-wise & state- 15

I.T.A.Nos.4576, 4577 & 4578/Del/2010 wise had been recorded for the financial years 2000-01 to 2004-05. Similar printed statements had also been seized vide pages 26 to 42 of Annexure AA-9/O-2 seized in the business premises of M/s. Super Delicacy Pvt. Ltd. Further similar statements were seized as per Annexure A-II/O-3 from business premises at 139, Udyog Vihar, Phase-I, Gurgaon. These printed statements contained all India sales report of MDH Ltd. for the years 2000- 01 to 2005-06 month-wise for each state in the country. The total sales as per these reports are tabulated on Page 7 of assessment order as under:-

               F. Y.                Turnover

            2000-2001           Rs. 94,63,07,936/-
            2001-2002           Rs.111,45,48,904/-
            2002-2003           Rs.129,36,49,261/-
            2003-2004           Rs.146,44,65,482/-
            2004-2005           Rs.156,78,66,369/-
            2005-2006           Rs.181,90,67,134/-.

As against this, the sales turnover declared by the assessee in its income tax return for the relevant Assessment Year were as under:-

               A. Y.                 Turnover

            2001-2002           Rs. 79,33,60,172/-
            2002-2003           Rs. 88,21,35,772/-
            2003-2004           Rs.103,99,58,000/-
            2004-2005           Rs.121,22,34,000/-
            2005-2006           Rs.128,61,99,000/-
            2006-2007           Rs.148,51,76,310/-
            2007-2008           Rs.178,10,24,213/-
                                      16
                                                       I.T.A.Nos.4576, 4577 & 4578/Del/2010

From above noted figures the assessing officer noted that the turnover declared by the assessee in the returns of income for the various Assessment Year cited above were less than the figures finding mention in this "All India Sales Report for MDH Ltd." in each Assessment Year by the substantial margin as below:-

Asst. Year Sales as per ROI Sales as per All Unaccounted India Sales Re- Sales port of MDH 2001-02 79,33,60,172 94,63,07,936 15,29,47,764 2002-03 88,21,34,772 111,45,48,904 23,24,14,132 2003-04 103,99,58,000 129,36,49,261 25,36,91,261 2004-05 121,22,24,000 146,44,65,482 25,22,41,482 2005-06 128,61,99,000 156,78,66,369 28,16,67,396 2006-07 148,51,76,310 181,90,67,134 33,38,90,824 2007-08 178,10,24,213

5. During the course of search at the business and residential premises of Shri Prem Kumar Arora, the supplier of raw material of the assessee, a note book was seized as Annexure A6/Party H6. As per this note book there were details of date-wise purchase of spices and dry-fruits (Magaj & ilaichi) for April, 2005 to May, 2005. These purchases were not recorded in the books of account of M/s. Nanak Enterprises, owned and controlled by Shri Prem Kumar Arora. The total unaccounted purchases as per details in the note book were of Rs.3,35,19,690/-. These purchases on closer scrutiny were related to the assessee company. The AO therefore, concluded that the 17 I.T.A.Nos.4576, 4577 & 4578/Del/2010 assessee company had not only been making unaccounted sales but also made unaccounted purchases on large scale.

6. The total unaccounted purchases for two months in F.Y. 2005-06 was Rs.3,35,19,690/- which gave monthly average of Rs.1,67,59,845/-. The evidence seized was recorded in a diary/note pad titled "MDH Sambhar Masala". Most of the raw material purchased recorded in this pocket note book were items like Jeera, dhania, magaj, imli, pudina, ajwain which are the products required in the manufacturing of masalas. The quantities purchased were also on very large, which could be only for the purpose of a large undertaking like M/s. MDH Ltd. The peculiar feature of the entries recorded in note pad is that it has four columns where the first column contained the quantity, the second column contained the description of the item purchased, the third column contained the rate of the item and the fourth column contained the name of the party in codes from whom these items were purchased. Shri Prem Kumar Arora had admitted the commission income @ 1% in his return of income on these transactions.

This evidence established that these purchases were unaccounted. They were not reflected in the books of account of MDH Ltd. However, the evidence pointed to the fact that those purchases were cash purchases made 18 I.T.A.Nos.4576, 4577 & 4578/Del/2010 for MDH Ltd. The facts that the details contained only the name of supplier such as SCS, RJCS etc. but no name of the purchaser clearly showed that the only purchaser was MDH Ltd., whose name was not considered necessary to be recorded by Shri Arora as all the purchases were meant for the assessee company. The availability of a huge amount of cash more than Rs.1 crore with Shri Arora was also a pointer to the fact that he was handling the unaccounted cash of MDH Ltd. as he himself was a dedicated supplier of the assessee company and his financial standing could not explain the huge cash found.

7. The AO further observed that existence of unaccounted purchases was not only confined to F.Y. 2005-06 alone as evidenced for unaccounted sales were found for all the years from 2000-01 to 2006-07. On a query by the AO it was submitted by the assessee that necessary enquiries regarding Annexure A-6/H-6 seized from the premises of Shri Prem Kumar Arora were made. It was explained that Annexure A-6/H-6 was a note pad which contained the details of all material arranged by him for various parties including the assessee. Wherever name of the assessee is appearing on top of the page the material has been sold by the parties mentioned therein to the assessee and the said purchases were duly recorded in the books of account 19 I.T.A.Nos.4576, 4577 & 4578/Del/2010 of the assessee, which may be verified from the books of account. It was incorrect to allege that the entries recorded were unaccounted purchases of the assessee. The assessee categorically stated that no unaccounted purchases were made by the assessee. It was also submitted that in respect of other transactions recorded in the note book the assessee was not having any knowledge about the same and Shri Prem Kumar Arora should be confronted and verified from his books of accounts though as per him the said note book contained the transactions which were not connected with the assessee. Nowhere in the said Annexure name of the assessee or any supplies made by him to the assessee were mentioned. He also informed that income on the basis of said Annexure had already been offered by him in his returns of income filed after the search. Thus, there was no reason to presume that the assessee had made any unaccounted purchases from M/s.Nanak Enterprises or Shri Prem Kumar Arora at any time. It was also informed that Shri Prem Kumar Arora had also not stated that any sale was made by him to MDH Ltd. which was not recorded in the books of account. In this regard it was important to appreciate that Shri Arora has been running a market outlet in Khari Baoli, Delhi which is wholesale market and sells goods to other buyers. It was not that he was solely working for the 20 I.T.A.Nos.4576, 4577 & 4578/Del/2010 assessee. Therefore, proposition made by the AO was baseless and without any evidence and should not be acted upon.

8. However, this explanation offered by the assessee was not found satisfactory by the AO. The AO observed that most of the purchases from Khari Baoli, Delhi were made through Shri Prem Kumar Arora. Shri Rajiv Gulati made disclosure u/s 132(4) that the same was towards discrepancies found in the accounts of suppliers. The AO further observed that the preponderance of probability weighed strongly in favour of the conclusion that those purchases were unaccounted cash purchases made by M/s. MDH Ltd. The totality of the evidences seized as per annexure A-6/H-6 and pages 14-22 of A-4/O-18 showed that the assessee company had used cash to make purchases through its suppliers. This modus operandi was noticed in F.Y. 2003-04, 2004-05 and 2005-06. Therefore, existence of unaccounted purchases in F.Y. 2004-05, 2005-06 and 2006-07 was not merely a strong possibility but a fact that could not be easily brushed aside.

9. The AO further observed that in the completed assessments a procedure to determine the estimated income has been followed. The unaccounted yearly purchase was arrived at on estimate basis taking the 21 I.T.A.Nos.4576, 4577 & 4578/Del/2010 unaccounted purchase for the months of April and May, 2005 (A.Y. 2006-

07) found recorded in the seized material totaling Rs.3,35,19,690/-. The yearly figure of unaccounted purchase was arrived at by multiplying it with sales ratio of the sales declared in the return of income divided by the total sales relating to the period in which the unaccounted purchases were found. The AO for the A.Y. 2006-07 estimated unaccounted purchases at Rs.17,41,73,225/-.

10. The AO further noted that evidence contained in the papers was actually used by the top management i.e. Directors of the company for reviewing the sales performance of the company in different regions of the country. The detailed analysis on these papers was also a pointer to the accuracy of the data in those pages. The return of income filed by the assessee has all details of discounts and commission given in the year. The profit & loss account of the assessee company for the year under consideration showed gross sales of Rs.135,46,53,000/- from which discounts and commission of rs.4,10,20,000/- was reduced and the net sales was worked out at Rs.128,61,99,000/-. The AO further noted that the claim of the assessee that figures in All India Sales Report were figures before the adjustment of discounts and commission did not seem to be correct as 22 I.T.A.Nos.4576, 4577 & 4578/Del/2010 comparison was being made with respect to gross sales of Rs.1,56,78,66,369/- from which discounts and commission of Rs.4,10,20,000/- if reduced then the net sales would not come to Rs.128,61,99,000/-. He further observed that gross sales in the return of income and All India Sales Report were at variance. The assessee's claim that figures in All India Sales Report were figures before the adjustment of discount and commission also was not correct as the comparison was being made with respect to gross sales in the return of income. The explanation offered by the assessee was not at all satisfactory. He therefore, rejected the explanation offered by the assessee. The AO applied GP rate of 37.62% on unaccounted sales of Rs.18,16,67,639/- and determined the profit at Rs.10,59,63,264/-. However, since unaccounted purchases were also estimated at Rs.17,41,73,226/-, the AO made an addition of Rs.11,00,00,000/- on account of profit from unaccounted sales for the year under consideration.

11. The assessee objected to the estimated addition on account of profit before DRP. DRP sustained the addition on the ground that identical additions made in Assessment Year 2001-02, 2002-03, 2003-04 and 2004-05 were confirmed by the CIT(A). Since the additions made by the AO were 23 I.T.A.Nos.4576, 4577 & 4578/Del/2010 identical and objections and arguments of the learned AR of the assessee were also identical, the objections raised by the assessee were rejected and the addition made by the AO was confirmed.

12. Before us the learned AR of the assessee submitted that the issue was squarely covered by the earlier decision of ITAT wherein additions made by the AO on estimate basis were deleted. On the other hand, the learned CIT- DR submitted that there was difference between All India MIS Sales Report and sales recorded in the books of accounts. During the course of search at the premises of Shri Prem Kumar Arora a Note Pad was found on which Shri Arora, the supplier of raw material to the assessee company has made notings in respect of unaccounted supplies made to the assessee. He further submitted that unaccounted cash was found in the premises of Shri Prem Kumar Arora, the supplier to the assessee company. The cash found with shree Prem Arora was that of the assessee. The learned CIT-DR supported the order of the AO strongly.

13. We have heard both the parties and gone through the material available on record. We find that this issue is squarely covered by the decision of ITAT in assessee's own case for A.Y. 2001-02 to 2004-05 dated 24 I.T.A.Nos.4576, 4577 & 4578/Del/2010 29.10.2010 in ITA Nos.1270, 1271, 1272 & 1273(Del) of 2011 wherein the addition made has been deleted by observing as under:-

"17. We have heard both the parties and perused the material available on record. There is no dispute that the figures mentioned in All India Sales Report are correct. He has stated that the bills are raised at product value i.e. 70 per cent of MRP. The MRP of the product is taken as sales in AISR. But while billing the sales the amount of trade discounts and other discounts are reduced and on the net amount sales tax is charged and the resultant amount is taken as sales made by the assessee in the books of account. In other words, in MIS report the product value is taken whereas in the books of accounts the sales after allowing trade discount and Sales-tax payable thereon is taken. During the course of hearing, the ld. AR of the assessee reconciled the figures with MIS report and the sales recorded in the books of accounts. To cite an example, M/s. Anurag and Company is super-stockists for Haryana. The sales as per books of accounts for the month of July, 2000 are at Rs.59,39,028.01 whereas as per MIS report the sales in respect of Haryana for the month of July, 2000 is at Rs.65,17,979/-. The ld. counsel for the assessee reconciled this figure as under :-

1. Local sales (spices) Rs.63,69,942.80

2. Local sales (Hawan) Rs. 1,38,240.00

3. Local sales (Hina) Rs. 6,966.00

4. Local sales (Aggarbatti) Rs. 3,280.00 Rs. 65,17,978.80 25 I.T.A.Nos.4576, 4577 & 4578/Del/2010 We have also gone through the copy of bills raised by the assessee.

As per invoice No. L-0247 dated 1st July, 2000 the sale value is Rs.6,000/- which goes to MIS statement. Trade discount was allowed at Rs.720/- and on balance of Rs.5,280/- cash discount at the rate of 2 per cent amounting to Rs.105.60 was allowed. The net sale price of the product is Rs.5,174.40 on which 10 per cent sales tax at Rs.517.44 was charged. The gross sales inclusive of Sales tax thus comes to Rs.5,691.84. This sale price is taken to books of accounts. Similarly, as per bill No.0248 the sale price as per product value is Rs.37,500/- which goes to MIS report. On this amount trade discount inclusive of additional discount of Rs.6,000/- was allowed. On the balance of Rs.31,500/- cash discount at the rate of 2 per cent amounting to Rs.630/- was allowed. On the balance of Rs.30,870/- Sales tax at the rate of 10 per cent was charged amounting to Rs.3,087/-. Thus the total sale price is at Rs.33,957/-. This amount goes to the books of accounts, as sale of the product as against Rs.37,500/- goes to the MIS report. Similarly, bill No. L-0249 dated 3rd July, 2000 is for Rs.1,92,012/- and goes to MIS report. After allowing trade discount, cash discount and levy of Sales tax, the sales are at Rs.1,73,870.71. The amount of Rs.1,92,012/- goes to MIS report and Rs.1,73,870.71 to books of accounts. Similar is the position in respect of invoice No. L- 0250 dated 3rd July, 2000. The product value which goes to MIS report is Rs.3,815/- whereas the sales recorded in the books of accounts are at Rs.3,536.81. Likewise, we have also gone through the sales in respect of Haryana, as per ledger account of M/s. Anurag and Company, in the books of accounts of the assessee. The total sales as 26 I.T.A.Nos.4576, 4577 & 4578/Del/2010 per product value is of Rs.1,23,14,799/- consisting of local sales (Spices) at Rs.1,20,43,691/-; local sales (Hawan) at Rs.90,190/-; local sales (Aggarbatti) Rs.1,63,738/- and local sales (Heena) Rs.17,180/-. The gross sales figures after allowing the trade discount and levy of Sales tax is at Rs.1,12,05,803.15 which goes to the books of accounts whereas the sales of Rs.1,23,14,799/- goes to MIS report. We have also gone through the sample vouchers for the month of February, 2000. The perusal of these vouchers again shows that the assessee has deducted the trade discount and cash discount from the product value and after levy of Sales tax the sales are recorded in the books of accounts. We have also gone through the annual reconciliation for assessment year 2001-02, which is placed at page No.574 of the paper book. The sales as per invoice are at Rs.94,63,07,936/- which has been recorded in MIS report. The discount as per invoice have been allowed at Rs.14,86,41,784/-. The resultant sales of Rs.79,76,66,153/- has been recorded in the books of accounts. Similar is the position for assessment years 2002-03, 2003-04 and 2004-05. Therefore, there is no difference between the figures reported in MIS information and as per the books of accounts. The assessee had been following this accounting policy for recording sales in the books of accounts consistently. If the assessee had not deducted the trade discount, cash discount or other discounts allowed at the time of sales, the assessee would have paid higher Sales tax, which was not required. Therefore, in our considered opinion, there is no difference between the figures reported in All India Sales Report (MIS report) and sales recorded in the books of accounts. These details and reconciliation was filed 27 I.T.A.Nos.4576, 4577 & 4578/Del/2010 before the assessing officer as well as the ld. CIT (A). The ld. CIT (A) while confirming the addition has rejected the contention of the assessee on the grounds that no documentary evidence was filed to support the contention that trade discount was allowed by the assessee at the time of making sales. In view of the above facts, in our considered opinion, no adverse inference can be taken about the sales recorded in the books of accounts and the figures found recorded in MIS reports for all the years.

18. As regards the un-accounted purchases determined by the assessee the ld. CIT (A) has not upheld the findings of the assessing officer. He has in para 11.2 at page No. 30 of the order observed as under:-

"I have considered the submissions of the appellant and, do not find justification in the same in as much as evidence found at the premises of Mr. Prem Kumar Arora cannot be taken as any basis to hold that the assessee made unaccounted purchases. I have perused the seized paper, the same does not contain any name of the appellant. Neither in the statement, Mr. Prern Kuma Arora has alleged that such transactions pertained to the appellant. In fact, in the affidavit filed before me, the same cannot be relied upon. In fact, at that time, the paper does not pertain to the business of the appellant company. It is well settled position of law that document found from the third person cannot be applied against the appellant and the burden lays upon the department to show that same reflects transactions of the appellant company. Reliance is placed on 28 I.T.A.Nos.4576, 4577 & 4578/Del/2010 the judgment in the case of CIT Vs Sukhdayal Rambilas reported in 136 ITR 414 wherein it has been held that what is apparent is not real, the burden to establish this is on the person who alleges this. Similar view has been expressed in the case of CIT Vs Daulat Ram Rawatmull reported in 87 ITR 349. In such circumstances, in my opinion, the Assessing Officer inferences on the basis of seized note book and held that there arc undisclosed purchases made by the appellant is not justified."

19. In this regard we would also like to record our findings about the note pad maintained by Shri Prem Kumar Arora. The assessing officer has estimated the unaccounted purchases on the basis of third column, which according to the assessing officer is the rate. On the other hand, according to the assessee the third column represents the lot No. on the ground that the new paisa cannot be in three figures e.g. 7856/260 cannot be read as Rs.7,856 and 260 paise. Likewise 7898/100 cannot be Rs.7,898 and.100 paise. According to the assessee it is lot No. For example at page No. 139 of the paper book, the sales as on 20th April, 2005 has been recorded. Some of the entries are as under:

25K Magaz                6191/KDI    (SLCS)
25K Magaz                50/DL       (SLCS)
                                29
                                                 I.T.A.Nos.4576, 4577 & 4578/Del/2010

The entry 25K represents some unit in form of katta or bag which is evident the total made at 100 items. Therefore, it is not the weight in Kgs., but quantity in kattas / bags. Likewise for Magaz the rate cannot be Rs.6191/KDI and for another quantity of 25 katta the rate cannot be Rs.50/DL. The figures taken as sale price does not reflect the price, but it could be either lot no or something else because new paisa cannot be in three digits as had been mentioned at several places. Merely because the entries had been recorded on note pad of "MDH Masala" it cannot be presumed that the purchases outside the books of accounts were made by the assessee. These entries nowhere reflect that unaccounted purchases were made. Therefore, the ld. CIT (A) was correct in coming to the conclusion that the entries recorded on note pads / note books cannot represent the purchases made by the assessee. From the decision of the ld. CIT (A) it is evident that there was no material with the assessing officer to estimate the undisclosed purchases. The Revenue has not filed appeal against this finding of the ld. CIT (A). Therefore, no adverse inference can be drawn on the basis of entries recorded on the note pad maintained by Shri Prem Kumar Arora.

20. However, the ld. CIT (A) on the basis of undisclosed sales determined as per AISR report and as per books of accounts he applied gross profit rate of 2.45 per cent to sustain the addition. We have already held that there is no difference between the sales recorded in MIS reports and as per books of accounts. Therefore, no addition on account of undisclosed profit can be made. We accordingly delete the addition in all the four years." 30

I.T.A.Nos.4576, 4577 & 4578/Del/2010

14. Since the issue in Assessment Years 2005-06, 2006-07 and 2007-08 is identical to that of earlier Assessment Years, respectfully following the decision of ITAT dated 29th October, 2010, the additions made by the AO at Rs.11,00,00,000/- for Assessment Year 2005-06; Rs.14,00,00,000/- for Assessment Year 2006-07; and Rs.9,02,38,560/- for Assessment Year 2007- 08 are deleted.

15. Next issue for consideration relates to addition of Rs.21,66,50,451/- in A.Y.2005-06; Rs.25,01,66,669/- for A.Y. 2006-07; and Rs.30,00,00,000/- in A.Y. 2007-08. The additions have been made by the AO on the ground that the assessee had earned undisclosed speculation business income. The AO observed that during the course of search at the residence of the director of the company, Shri Rajiv Gulati cash of Rs.48,00,000/- was found in his bed- room and Rs.24.86 lacs was found from the bed-room of Shri Dharam Pal Gulati. When asked about the source of cash found, both the directors in their statements u/s 132(4) admitted that they have been doing speculation in commodities during the financial year 2006-07. Both the directors have also declared substantial income of Rs.15.00 crores each as income towards speculative trading in commodities. In their statements they have also 31 I.T.A.Nos.4576, 4577 & 4578/Del/2010 admitted that the speculative trading carried out by them were in cash and the commodity trading was in respect of the agricultural commodities. They further admitted that the income from this speculative trading was not reflected anywhere in the books of account. Shri Rajiv Gulati also gave details of investments made out of such income by stating that they have been investing in purchase of jewellery, improvement of home and advances against purchase of properties, contribution towards charitable trusts, advances given to different parties for speculative trading etc. Similarly Shri Dharam Pal Gulati in his statement u/s 132(4) has given details as to how he had invested his unaccounted income from speculative trading. The AO noted that there was evidence for speculation in commodity trading during the course of search proceedings. The crucial evidence of speculation in Haldi and Chillies have been seized vide Pages 14-15 and 19 to 22 of the seized material Anenxure A-4/O-18. Speculative trading in Dhania has been carried out through M/s. Radhey Shyam & Co., Ramganj, Mandi for which evidences were recorded on Pages 5 & 8 and Pages 8 to 13 of Annexure A-4/O-18. The evidences contained in Pages 14-15 and 19 to 22 mentioned that the speculative trading in Haldi and Chillies through M/s. Karni Sons (KS), M/s. Karni Enterprises (KE), M/s. Jitesh Kumar Bhupesh Kumar & Co. (JB) and also one Balkishan. The profits from speculation 32 I.T.A.Nos.4576, 4577 & 4578/Del/2010 trading consist of rate differences generated in the process of purchase price and the final price at which the stocks were recorded in the books of account. The assessee company makes purchases when the peak season arrives but the stock is held by the parties and is sent to the premises of the assessee company depending upon the actual requirements of inventory in the manufacturing process. The AO further noted that the assessee was also engaged in speculation in gold trading reflected at Pages 20-21 to Annexure AA-O1 for the period 13.04.2004 to 01.10.2004. For this limited period of 8 months the total turnover done by the assessee was in the range of Rs.2 crores to Rs.3 crores. In this connection, Shri Vijay Kumar, Jeweller was summoned to verify the transactions of M/s. MDH Ltd in the entire period 2000-01 to 2006-07. The assessee was asked to explain the contents of the transactions recorded on Pages 20 & 21 of AA-4-01during the assessment proceedings for the A.Y. 2001-02 to 2004-05. It was submitted by the assessee that Page Nos. 20 & 21 of Annexure AA-4 contained the statement of account of gold ornaments of MDH from 01.04.2004 to 31.10.2004 received from M/s. Vijay Kumar Jewellers, Karol Bagh, New Delhi. The assessee company had introduced the scheme of giving out gold chains to its parties as incentive for increasing its sales. Accordingly, MDH Ltd. had engaged the services of the said jeweler to make these gold chains from gold 33 I.T.A.Nos.4576, 4577 & 4578/Del/2010 bars also purchased from the said party only. The said statement shows the date-wise stock of gold of .995 purity and allow in grams (g.) - milligrams (mg.). It was further stated that alloy is mixed as impurity with the pure gold to make any ornament. Thus, gold bars as well as alloy was bought and given to the said party by MDH Ltd. In the statement `Credit' column represented gold chains (new ornaments) produced and supplied to MDH by the said jeweler whereas weights of the balance gold remaining on a particular day with the jeweler was mentioned in the last column. The first row of the statement shows an opening balance as on 1.4.04 of gold having 93% purity level and weighing 208.343 gms. (i.e. 208 g. & 343 mg.). In this next row, on 13.4.04 the jeweler received 2 kgs of gold of .995 purity and the same was written below the `credit' column as 2000.000 gms. (i.e. 2000g & 000 mg.) when he also received alloy weighing 139.784 gms. on the same day. Likewise, all other receipts of gold and alloys were recorded. On 28.04.04, 211 pieces of gold chains (i.e. new ornaments) were supplied to MDH Ltd., which were recorded under `debit' column having total weight of 2970.690 gms. The balance of gold remaining on that date (i.e. 28.04.04) with the jeweler was mentioned by him as 447.329 gms. Thus, it was stated that the assertion of the AO was wrong and no such addition as proposed by the AO was called for. All transactions of purchase of gold and alloy and 34 I.T.A.Nos.4576, 4577 & 4578/Del/2010 making charges paid to the jeweler were fully accounted for in the books of account of MDH Ltd. Copy of account of the said party for the FY 2004-05 was also furnished by the assessee for verification.

16. The reply of the assessee was considered by the AO. According to the AO the assessee had tried to mislead by stating that entries represented stock of gold kept with the jeweler for making ornaments for the scheme floated by the company. It was not understood as to why the assessee company had maintained stock of gold with a private jeweler for manufacturing ornaments when such purchases could be made by payment of cash. If the assessee wanted to have the jewellery according to its choice even then the final payment for the total cost of ornaments would be made rather than purchasing gold and alloy separately for the purpose. The explanation offered by the assessee was found to be misleading. The AO further noted that a major element in the purchase transactions was a speculative profit in which deliveries were not taken and rate differences had accrued and arisen in the hands of the assessee company but the same was not reflected in the books of account. The clinching evidence contained on pages 14 to 22 and in particular page 19 showed generation of unaccounted cash by systematic inflation of purchases through the suppliers and the commission agents and 35 I.T.A.Nos.4576, 4577 & 4578/Del/2010 utilization of the cash to make purchases in the peak season and generation of profits through rate differences by taking advantage of the rising price spiral as the peak season of procurement slowly tapers off with the lesser supplies and increasing prices. The evidence on these pages related to the years 2003-04, 2004-05 and 2005-06 but the modus operandi clearly showed that the assessee was doing this as a matter of business practice. The AO also relied on the statement of Shri Sushil Trehan. Further the directors of the assessee company had admitted income of Rs.30 crores on this account for the financial year 2006-07. The income however, belonged to the assessee company as the same was earned by deploying the funds of the company, by using the purchase network of the assessee company and this income arose in the natural course of business of the assessee company. The income for F.Y. 2004-05 from the commodity speculation was estimated by using the admitted profits of speculation in the financial year 2006-07 at Rs.30 crores as the yard-stick in the hands of the company. The AO estimated the profit for all the three years in the same proportion as the turnover of financial year 2004-05 as it bears to the turnover of financial year 2006-07.

I.T.A.Nos.4576, 4577 & 4578/Del/2010

17. The addition proposed by the AO was objected before the DRP. However, the DRP sustained the addition on the ground that identical additions were made in Assessment Years 2001-02 to 2004-05. The DRP further noted that the addition was made by the AO but was deleted by the CIT(A). However, the Department was in appeal before the ITAT. The DRP in view of these facts rejected the objections raised by the assessee for Assessment Year 2005-06, 2006-07 and 2007-08.

18. Before us the learned AR of the assessee submitted that the issue is squarely covered by the decision of ITAT wherein the addition deleted by the learned CIT(A) was upheld. The learned CIT-DR on the other hand supported the order of the AO.

19. We have heard both the parties and gone through the material available on record. ITAT Delhi Bench `E' New Delhi in assessee's own case for the Assessment Year 2001-02 to 2004-05 discussed the issue relating to speculation activity in agricultural commodity and gold in the following words:-

"28. The first issue in the Revenues' appeal relates to deleting the addition made by the assessing officer on the basis of documents 37 I.T.A.Nos.4576, 4577 & 4578/Del/2010 seized relating to speculation activity in agricultural commodity and gold. The assessing officer noted that there was evidence for speculation in commodity trading during the course of search proceedings. Speculative trading in Dhania has been carried through M/s. Radhey Shyam and Co., Ramganj Mandi. He also noted that speculative trading was also done in Haldi and Chillies through Karni Sons, M/s. Karni Enterprises and M/s. Jitesh Kumar Bhupesh Kumar & Co. and also one Bal Kishan. He also noted that various documents seized from the possession of Shri Sushil Trehan contained details of undisclosed speculative transactions undertaken with its suppliers by the assessee. Further seized material also revealed that the assessee had indulged in the undisclosed speculation business in gold trading with M/s. Vijay Kumar Jewellers, Karol Bagh, New Delhi, during the period from 1/04/2004 to 31/10/2004. The assessing officer also noted that there was no need to maintain stock of gold with private jeweler since direct purchases of ornaments could be made instead of buying gold and allow separately than getting it manufactured, which shows its involvement in speculative trading. He also observed that the seized document show the generation of unaccounted cash and utilization in making purchases in the peak season than generated profit through rate difference. The assessing officer relied on the surrender made by two Directors on account of speculative activities of Rs.15 crores each, carried out by them. The assessing officer took the amount of Rs.30 crores as base figure for making the impugned additions in all the assessment years. The assessing officer in order to work out undisclosed income of each of 38 I.T.A.Nos.4576, 4577 & 4578/Del/2010 the four years adopted formula by which he multiplied the said Rs.30 crores with the assessee's turnover for each assessment year and by dividing the turnover of the assessee for assessment year 2006-07 in which search took place and alleged speculative income of Rs.30 crores was offered by the two Directors in their personal hands.

29. On appeal it was submitted that Annexure A-4 was found from the possession of Shri Sushil Trehan, who had owned up and the income arising on account of said Annexure was duly declared by him, which has also been assessed in his hands. It was also submitted that there was no speculation in Chilly and Haldi by any person as the seized material does not indicate so. As regards purchase of gold, it was submitted that the assessee distributed gold chains as a part of sales-promotion scheme. In order to procure gold chains, the assessee purchased gold and alloys and gave the metal to Vijay Kumar Jewellers for manufacture of the gold chains. As and when the chains were supplied, M/s. Vijay Kumar Jellwers was giving the accounts and another quantity of gold was purchased. The distribution of the chains under the scheme was declared on Birthday Scheme of Mahashaya Dharam Pal Gulati. Page Nos. 20-21 of Annexure AA- 4/O-1 exhibits the transaction with M/s. Vijay Kumar Jewllers. Undisputedly the proof of delivery was in the seized material itself. In brief the assessee purchased gold and alloy for manufacture of gold chains. M/s. Vijay Kumar Jellwers after manufacture of gold chains gave the accounts which tallied with the books of accounts. Therefore, the contention of the assessing officer that the assessee was engaged in speculation business of gold is not correct. It was further 39 I.T.A.Nos.4576, 4577 & 4578/Del/2010 submitted that the said statement related to the period for assessment year 2004-06 and has been referred to by the assessing officer in order to support his presumed high-pitched assessments. The search did not yield in any evidence suggesting of receipt of any such income that too of such a large sum of Rs.30 crores in particular financial year 2006-07 and other amounts as have assessed in other years without any evidence. The assessing officer had placed reliance on statement of Directors of the company for making addition though the same were retracted by them immediately thereafter during the continuation of search proceedings on 28/11/2006. The ld. CIT (Appeals), after considering the submissions of the assessee deleted the addition. He accepted the contention of the assessee as correct. He observed that the assessing officer had made addition in A.Ys. 2001-02 to 2004-05 relying on surrender of income in assessment year 2007-08. He also noted that no addition can be made by alleging that the assessee also must have earned similar income that too in earlier years without any evidence of nature on record. As regards the allegation of parallel cash balance on the basis of page No. 40 of Annexure A-3/O-2,ld CIT(A) observed that the assessee has explained its nature and got it tallied with the entries in the regular bank account statement maintained with HDFC Bank, Ludhiana.

30. Before us the ld. [CIT] - DR submitted that once the surrender was made during the course of search, the assessee was bound to declare the same in the return of income and pay taxes thereon. She supported the order of the assessing officer. On the other hand, the ld. counsel for the assessee reiterated similar arguments before the ld. 40

I.T.A.Nos.4576, 4577 & 4578/Del/2010 CIT (A). He submitted that when surrender is retracted, then onus is on the Revenue to prove that the surrender was correct on the basis of evidences gathered at the time of search or thereafter. Merely because surrender was made the same is not binding on the assessee unless proved otherwise by the Revenue. In fact retraction of surrender was also accepted by the Investigation Unit as the cheques taken by the Income-tax Officials at the time of surrender against the Income-tax liability thereon were not at all presented for encashment on the due dates. He, therefore, supported the order of the ld. CIT (A)."

ITAT after considering the above facts held as under:-

"31. We have heard both the parties and gone through the material available on record. During the course of search, no evidence was found to the effect that the assessee company was engaged in speculative trading in agricultural commodities. The assessing officer made a reference to the alleged over invoicing of Haldi and Chilly as a speculative transaction. It is a fact that the company announces several sales promotion schemes. One of the scheme is pronounced on the birthday of Mahashaya Dharam Pal Gulati. On this date gold chains are distributed to the dealers, who achieve certain targets. For this purpose the assessee had purchased gold and alloy and got them converted from the jeweler, namely, Vijay Kumar Jewellers. The assessee had regular account with him for manufacturing of gold chains. From the details available on record whenever fresh gold was purchased the same was handed over to the jeweler for manufacture of gold chains. The expenditure incurred by way of making charges 41 I.T.A.Nos.4576, 4577 & 4578/Del/2010 as well as purchase of gold is reflected in the books of accounts. We are unable to understand as to how such transactions can be treated as a speculation transaction. The assessee is not engaged in purchase and sale of gold on the basis of which it could be presumed that the assessee was engaged in speculative business. The surrender made by the Directors during the course of search was retracted immediately thereafter. If the Revenue wanted to rely on the surrender made by the Directors, necessary evidence should have been brought on record to justify that the surrender made by the assessee was correct. Income cannot be assessed on presumption basis. When the retraction for assessment year 2007-08 was made, the same figure cannot be taken for estimating the speculative business for assessment years 2001-02 to 2004-05. No addition can be made without any supporting evidence. In the instant case, the assessing officer has presumed that the assessee might have done speculative business in agricultural commodity and gold in assessment years under consideration. Therefore, in our considered opinion, the ld. CIT (A) was justified in deleting the addition. Accordingly, we do not find any infirmity in the order passed by the ld. CIT (A) deleting the addition for all assessment years."

20. Since the issue involved in the years under consideration is identical and Revenue has not brought any material contrary to Assessment Years 2001-02 to 2004-05, we do not find any reason to differ from the decision 42 I.T.A.Nos.4576, 4577 & 4578/Del/2010 taken in earlier years. We accordingly delete the addition on account of speculative business in agricultural commodities and gold.

21. Next issue for consideration relates to confirming the addition on account of advertisement expenditure of Rs.2,38,70,600/- in A.Y. 2005-06; Rs.2,11,27,739/- in A.Y. 2006-07; and Rs.2,46,82,361/- in A.Y. 2007-08. The facts of the case are that the assessee incurred Rs.11,93,53,000/- on advertisement expenditure in A.Y. 2005-06; Rs.10,56,38,697/- in A.Y. 2006-07; and Rs.12,34,11,805/- in A.Y. 2007-08. The AO observed that expenses incurred on advertisement were high. He referred to the reasons for disallowance of advertisement expenses in A.Y. 2001-02 to 2004-05. The AO while disallowing the advertisement expenses observed that in all the advertisements given by the assessee company in print and visual media, the name of the main promoter Director Shri Dharam Pal Gulati was prominently displayed and advertised. The attempt in media campaign was to promote the Mahashayaji as an icon. The question that arose was whether the entire expenditure on advertisement could be taken wholly and exclusively incurred for the purpose of business of the assessee. The brand `MDH' actually refers to Dharam Pal Gulati. The ownership of the brand was not defined as on date. It was not clear whether the title to the brand 43 I.T.A.Nos.4576, 4577 & 4578/Del/2010 was in the hands of the assessee company. In the absence of the same certain portion of the expenditure attributable to the same could not be allowed. The AO disallowed the expenditure on the ground that an attempt has been made by the company to promote Shri Dharam Pal Gulati and not the product. The AO therefore, proposed the disallowance of 20% of the advertisement expenditure. However, DRP upheld the addition on the ground that similar additions were made in Assessment Years 2001-02 to 2004-05. The DRP further observed that these additions were deleted by the CIT(A). However, the Department has filed appeal before ITAT and has contested the deletion of disallowance by the CIT(A). DRP in order to protect the interests of the revenue upheld the disallowances in Assessment Years 2005-06, 2006-07 and 2007-08.

22. Before us the learned AR of the assessee submitted that this issue is squarely covered by the decision of ITAT in the case of the assessee for Assessment Year 2001-02 to 2004-05. On the other hand, the learned CIT- DR supported the order of the AO. For disallowance u/s 40A(2)(a) the learned CIT-DR placed reliance on the decision in the case of Shatrunjay Diamonds vs. CIT (2003) 261 ITR 258 (Bom.) for the proposition that burden was on the assessee to establish that price paid by it was not 44 I.T.A.Nos.4576, 4577 & 4578/Del/2010 excessive or unreasonable. He also placed reliance on the decision of Hon'ble Madras High Court in the case of CIT vs. NEPC India Ltd., 303 ITR 271 and decision in the case of CIT vs. Paarel Imports & Exports (P) Ltd. 171 Taxman 209 (Ker.). As regards decisions relied upon in the case of sec. 40A(2)(a) the learned AR of the assessee submitted that the decisions relied upon are in respect of payments of excess payments to its sister concern. Said payments have been made to said concern in earlier years but no disallowance has ever been called for. Disallowance has been made not under sec. 40A(2)(b) but on estimate basis @ 20% on other expenses. In case of Shatrunjay Diamonds (supra) the AO compared the price of diamonds imported by the assessee through the related parties and other parties and had came to the conclusion that the assessee had paid extra price to the related parties and therefore, the disallowance was made. The matter was remanded for verification to the Assessing Officer. In the case of assessee no such comparison of price has been drawn by the AO and no evidence has been brought on record and therefore facts of the case are entirely different. It was also submitted that facts of NEPC India Ltd. (supra) and Paarel Imports & Exports (P) Ltd. (supra) are entirely different and therefore, they are not applicable to the facts of the assessee's case. 45

I.T.A.Nos.4576, 4577 & 4578/Del/2010

23. We have heard both the parties and gone through the material available on record. We find that this issue is covered by the decision of ITAT for Assessment Year 2001-02 to 2004-05. ITAT deleted the addition by observing as under:-

"34. We have heard both the parties and gone through the material available on record. There is no dispute that the expenditure incurred on advertisement is genuine. The disallowance has been made by the assessing officer merely on the ground that instead of products, the CMD of the company is being promoted. In our considered opinion, this is a silly proposition on the part of the assessing officer. Had the assessee engaged a big celebrity for promotion of its products, the assessee would have incurred huge expenditure and that would have been allowed in full by the assessing officer. The expenditure has been incurred on promotion of the product. Therefore, in our considered opinion, the ld. CIT (A) is justified in deleting the addition. Merely because Mr. Dharma Pal Gulati name comes to prominence, it cannot be said that the expenditure was not incurred for the purpose of business. The issue is covered in favour of the assessee by the decision of ITAT, Mumbai Bench in the case of Star India P. Ltd. Vs. ADIT 103 I.T.D. 73 (Mum.) (TM) wherein it has been held that advertisement expenses incurred for the business purposes are allowable and it does not matter that other party is also benefited by such advertisement."

I.T.A.Nos.4576, 4577 & 4578/Del/2010

24. Since identical issue is involved and no evidence on the basis of which contrary decision could be taken was brought on record, we respectfully following the decision of ITAT, delete the addition on account of advertisement expenditure for all the three years.

25. Next issue for consideration relates to addition made on account of inflation of purchase price of raw spices. The AO made the following additions:-

      Assessment Year                  Addition

      2005-06                         Rs.1,13,71,759/-
      2006-07                         Rs.1,25,43,293/-
      2007-08                         Rs.1,32,63,588/-

During the course of search operation Annexure A-4/O-18 was seized from the office of Shri Sushil Kumar Trehan located in Mata Chanan Devi Hospital at C-1, Janakpuri, New Delhi. During the course of search Shri Sushil Kumar Trehan, son-in-law of Shri Dharam Pal Gulati admitted in his statement recorded u/s 132(4) of the Act that he was looking after purchases of MDH group. Page No.14 to 22 of Annexure A-4/O-18 are the statement of account of M/s. Karni Sons (KS) (Page 14), M/s. Karni Enterprises (KE) (Page 19) and M/s. Jitesh Kumar Bhupesh Kumar & Co,. (Pages 20-21) wherein date-wise, bill-wise quantitative details of chillies and haldi 47 I.T.A.Nos.4576, 4577 & 4578/Del/2010 purchased from these firms are recorded. The details pertained to financial years 2003-04, 2004-05 and 2005-06. The total quantity of chillies and haldi purchased is multiplied by 3 for Haldi and by 5 for Chillies. The AO on the basis of entries recorded had noted that the purchase invoices of Chillies and Haldi raised by these parties were for MDH Ltd. The purchases were over invoiced to the extent of Rs.3/- per Kg in the case of Haldi and Rs.5/- per Kg. in the case of Chillies. In response to a query raised by the AO it was stated that Pages 14-22 pertained to Shri Sushil Kumar Trehan and the relevant income has been declared by him in his hands. Although the assessee admitted that the stock in question belong to it yet inflation in the purchases of Haldi and Chillies recorded on these pages was the work of Shri Sushil Kumar Trehan in his individual capacity. The assessee also admitted that the raw material was purchased by the assessee at the invoice price only and not at inflated price. The AO however, rejected the contention of the assessee. He observed that an attempt has been made by the assessee to shift the blame on Shri Sushil Kumar Trehan, son-in-law of Shri Dharam Pal Gulai. The explanation of the assessee company could not be accepted for the reasons that Shri Sushil Kumar Trehan could not take such decision without the consent of the director of the company as he did not hold any position in the company and if he had indulged in such 48 I.T.A.Nos.4576, 4577 & 4578/Del/2010 unauthorized activity, how it was not detected by the assessee for so long. The assessee company had been in the business of procurement of raw material for decades and they could not have misled about the price at which two of the most important raw materials were being invoiced. Further the utilization of surplus generated was also in accordance with the directions of the directors of the assessee company. Therefore, income earned in this process belonged to the assessee company and should be taxed as income in its hands. The AO estimated income by multiplying the quantity of Haldi and Chillises purchased by the assessee by Rs.3/- and Rs.5/- respectively. For Assessment Years 2005-06, 2006-07 and 2007-08 the inflation in the purchase price was determined as under:-

A.Y.2005-06 Haldi 713613 Kgs. X Rs.3.00 = Rs.21,40,839/-

Chillies    1846184 Kgs. X Rs.5.00           =     Rs.92,30,920/-

                                Total        =    Rs.1,13,71,759/-

A.Y.2006-07

Haldi       713226 Kgs. X Rs.3.00            =     Rs.21,39,678/-

Chillies    2080723 Kgs. X Rs.5.00           =     Rs.1,04,03,615/-

                                Total        =    Rs.1,25,43,293/-

In A.Y. 2007-08
                                          49
                                                       I.T.A.Nos.4576, 4577 & 4578/Del/2010


Haldi         859361 Kgs. X Rs.3.00           =     Rs.25,78,083/-

Chillies      2137101 Kgs. X Rs.5.00          =   Rs.1,06,85,505/-

                                 Total        =   Rs.1,32,63,588/-

The assessing officer proposed addition of above mentioned amounts in the hands of assessee in the draft orders for assessment years 2005-06, 2006-07 and 2007-08.

26. The assessee objected to additions proposed by the AO for inflation of purchases. DRP observed that the AO had discussed the additions in Para 9 of Draft Assessment Orders for A.Y. 2005-06 and 2006-07 and in Para 8 of Draft Assessment Order for A.Y. 2007-08. It has also been observed that similar additions were made for A.Y. 2001-02, 2002-03, 2003-04 and 2004- 05 on identical facts. These additions were confirmed by the CIT(A). The assessee has raised similar arguments for these years also. Since the additions were confirmed by the CIT(A), the objections raised by the assessee in respect of all the Assessment Years under consideration i.e. 2005-06, 2006-07 and 2007-08 were rejected.

27. Before us the learned AR of the assessee submitted that the issue is squarely covered by the decision of ITAT for Assessment Years 2001-02 to 50 I.T.A.Nos.4576, 4577 & 4578/Del/2010 2004-05. The learned AR of the assessee placed reliance on the decision of Hon'ble High Courts in the cases of CIT vs. Shiv Prakash Aggarwal (2007) 165 Taxman 141 (Delhi); CIT vs. Ashok Kumar (2006) 286 ITR 541 (All.); & District Superintendent of Police, Channai vs. K. Inbasagaran (2006) 282 ITR 435 (SC) for the proposition that if a person accepts and owns the assets or seized material, addition cannot be made in the hands of the person from whose premises it was seized. On the other hand, the learned CIT-DR submitted that evidence was found during the course of search that purchases were inflated by Rs.3/- in respect of Haldi and Rs.5/- in respect of Chillies. Shri Rajiv Gulati had admitted in his statement that there was over invoicing in purchases. The parties from whom purchases have been made i.e. Jitesh Kuamr Bhupesh Kumar, M/s. Karni Sons and M/s. Karni Enterprises have also stated in their statements recorded under sec. 131 of the Act that they charged higher prices to M/s. MDH Ltd. but no explanation for such over invoicing was given. The explanation of the assessee that it was done by Shri Sushil Kumar Trehan was not acceptable. The DRP has confirmed the inflation of purchases. The learned CIT-DR placed reliance on the decision of Hon'ble Delhi High Court in the case of CIT vs. A.K. Jain 2012-TIOL-354-HC0DEL-IT for the proposition that even if income has been assessed in the hands of a third person because of the declaration made 51 I.T.A.Nos.4576, 4577 & 4578/Del/2010 in the return, income must be assessed and taxed in the hands of real owner or recipient or person, who had made the investment. He also placed reliance on the decision of Hon'ble Supreme Court in the case of ITO Vs. Ch. Atchaiah, 218 ITR 239 (SC).

28. We have heard both the parties and have gone through the material available on record. We find that this issue is squarely covered by the decision of ITAT dated 29th October, 2010 for A.Y. 2001-02 to 2004-05. We have gone through the statement given by Shri Rajiv Gulati. In his statement Shri Rajiv Gulati stated that Shri Sushil Kumar Trehan was looking after supplies of raw-material to M/s. MDH Ltd. It was also stated that there was no practice in MDH Ltd. to inflate the purchase price. Shri Sushil Kumar Trehan was doing on his own account and initially to escape the liability of tax he had made statement that purchase inflation was on account of purchases made by MDH Ltd. It was also stated that Shri Sushil Kumar Trehan has admitted income from over invoicing in his return of income. ITAT Delhi Bench `E', New Delhi in order dated 29th Octoebr, 2010 in ITA Nos.1270 to 1273(Del) of 2010 in assessee's own case for Assessment Years 2001-02 to 2004-05 in Para 27 has discussed the issue in detail. The addition made by the AO was deleted by observing as under:- 52

I.T.A.Nos.4576, 4577 & 4578/Del/2010 "27. We have heard both the parties. There is no dispute about the fact that the papers on the basis of which addition was made, were found from the office of Shri Sushil Kumar Trehan, who was CFO of Mata Chanan Devi Hospital. Shri Sushil Trehan was engaged in the procurement of Haldi and Chillies. Shri Sushil Kumar Trehan has admitted the income in his return of income, which has been assessed by the assessing officer. No appeal against the assessment order made under section 153-A of the Act has been made. Shri Sushil Kumar Trehan had paid the tax along with interest. Therefore, the difference between the purchase price paid by MDH Ltd. and the amount paid to the suppliers had been retained by Shri Trehan. If an amount is retained, by a person, who has rendered services by way of procurement, definitely the same will represent the commission. It is also a fact that Shri Sushil Trehan was not paid anything for the services rendered to the company. Moreover, the statement recorded DDIT was not confronted to the assessee. Therefore, it cannot be said that the amount of Rs.3/- per Kg. and Rs.5/- per Kg.

which has been admitted by Shri Sushil Trehan, in his return of income, has come to the assessee. No such evidence during the course of search was found from the possession of the assessee indicating that actual beneficiary is the assessee. Since the addition has been made in the hands of Shri Sushil Trehan, the disallowance to that extent cannot be made in the hands of the assessee. Moreover, the transactions involving over invoicing was found in assessment year 2004-05, but the AO made addition of equal amount in AY 2001- 02, 2002-03 and 2003-04 also without any material found during the 53 I.T.A.Nos.4576, 4577 & 4578/Del/2010 course of search. The addition made in AY 2001-02, 2002-03 and 2003-04 is based on mere suspicion and presumption and is not supported by any evidence found during the course of search that Shri Sushil Trehan has earned commission on purchase of Haldi and Chilly in these years also. The AO had added the same amount in all the four years. Since the income has been assessed in the hands of Shri Sushil Trehan, the amount to that extent is in nature of commission income and becomes the expenditure in the hands of the assessee particularly when no evidence suggesting that over invoicing was done at the instance of the assessee was found. Moreover the same income cannot be taxed twice, once in the hand of Sushil Trehan as his income and again in the hands of assessee by way of disallowance of the expenditure. Therefore, in our considered opinion, no addition can be sustained in the hands of the assessee. Accordingly, we delete the addition in all the years under consideration."

29. The above mentioned view of the Tribunal is supported by following decisions:

(i) In the case of CIT vs. Shiv Prakash Aggarwal (supra) a search was conducted at the premises of the assessee who was residing along with his father. The AO issued notice under sec. 158BC to the assessee for filing of block return but the assessee objected to same stating that search warrant was in the name of 54 I.T.A.Nos.4576, 4577 & 4578/Del/2010 his father and not in his name. The assessee also explained that documents/material seized from during search also belonged to his father. The AO rejected the assessee's reply and made certain additions. Hon'ble Delhi Court has held that since the father of the assessee has owned up the documents seized during the course of search and has also filed affidavit to that effect, any addition on account of such seized documents could not be made in the hands of the assessee.

(ii) In the case of CIT vs. Ashok Kumar (supra) in the course of the search conducted in residential premises occupied jointly by the assessee and his father certain books of account were found including two books maintained in the name of the assessee's father and mother. The assessee denied the ownership but the assessee's father accepted ownership of the books by filing an affidavit. The AO added the interest earned on investment found in the books to the income of the assessee but this was deleted by the CIT(A) and the deletion was upheld by the Tribunal. On further appeal the Hon'ble High Court held that the findings recorded by the Commissioner (Appeals) and 55 I.T.A.Nos.4576, 4577 & 4578/Del/2010 upheld by the Tribunal was based on appreciation of evidence and material on record and needed no interference.

(iii) In the case of District Superintendent of Police, Channai vs. K. Inbasagaran (supra) search in premises of public servant took place. Wife of public servant claimed the ownership of money and assets. Department assessed her to tax. Evidence given by wife and others also were considered in proceedings. It has been held that public servant not guilty of charge under Prevention of Corruption Act, 1988, Sec. 13(1)(e) read with section 132(4) of the Income-tax Act, 1961.

30. In the case of the assessee the documents containing over invoicing by Rs 5 and Rs 3 on purchases of Chillies and Haldi were seized from the office of Sushil Kumar Trehan who has owned up the documents and income arising therefrom as commission for procurement services rendered by him. and had admitted in the returns of income. Since the issue is squarely covered by the decision of ITAT, in our considered opinion, addition cannot be made in the hands of the assessee. Following the decision of ITAT for 56 I.T.A.Nos.4576, 4577 & 4578/Del/2010 earlier years, We delete the additions in Assessment Years under consideration.

31. Next issue for consideration which is common for all the three years relates to addition towards inflation in expenses based on documents seized under AnnexureA-4/O-18. The AO examined the entries found recorded on Pages 51-52 & 89 of Annexure A-4/O-18. The assessee purchased chillies from M/s. B.D. Patil Industries, Vinayak Traders, M/s B.D, Patil Sons & Shri Someshwar Commission Company. There was inflation of prices @ Rs.5/- per Kg. for chillies. The AO found inflation of purchases in Assessment Year 2005-06 at Rs.54,48,600/-. On a query raised by the AO it was stated that Page No.52 on the letter-head of M/s. B.D. Patil Industries had been explained by Shri Sushil Kumar Trehan and declared unaccounted income noted therein. Further it was stated that no adverse cognizance can be taken as the assessee has no knowledge of what Shri Sushil Kumar Trehan might have been doing at his back for his own personal gains. It was also stated that the director of the assessee company namely Shri Rajiv Gulati in his statement dated 15.12.2008 had denied that said amounts of Rs.5/- and Rs.3/- per Kg. of Chillies and Haldi were received by the assessee company. The AO also mentioned that in Assessment Year 2001-02 to 57 I.T.A.Nos.4576, 4577 & 4578/Del/2010 2004-05 it was held that the assessee was earning income by inflating the purchases of chillies by Rs.5/- per Kg. and of Haldi by Rs.3/- per Kg. It was held that Shri Sushil Kuamr Trehan had been blamed for all the wrong doings found in the search but in fact he was acting for the company. The AO concluded that the assessee has inflated expenses by Rs.3/- and Rs.5/- per Kg. in respedct of Haldi and Chillies. Referring the statement of Shri Sushil Kumar Trehan, the AO stated that Shri Sushil Kumar Trehan admitted the inflation of purchases by MDH Ltd. Argument of the assessee that Shri Sushil Kumar Trehan was involved in inflation of purchases without the knowledge of company could not be accepted since at page 52 relating to inflation of purchases etc. the name of MDH, Delhi and Gurgaon Branches had been mentioned by Shri Suresh Patil. Therefore, the AO concluded that the inflation of expenses was definitely done by the assessee and execution of the same was carried out by the son-in-law of Chairman of MDH Ltd. i.e. Shri Mahashiya Dharam Palji. The AO further noted that no legal action was taken by the assessee company against Shri Sushil Kumar Trehan for carrying out such activities. From this it was clear that Shri Sushil Kumar Trehan was carrying out such activities with the tacit/verbal approval of the assessee. As regards declaration of income on account of inflation of expenses by Shri Sushil Kumar Trehan in his return of income 58 I.T.A.Nos.4576, 4577 & 4578/Del/2010 would not absolve the assessee company from the addition because he was only acting on behalf of the assessee company. The AO therefore, added the amount of Rs.54,48,600/-.

32. The assessee objected to addition of Rs.54,48,600/- before DRP. It was submitted that the entries recorded on seized paper were not by way of any inflation of purchases but it was the secret commission received by Shri Sushil Kumar in the supplies of Haldi and Chillies to the assessee. It was also submitted that Shri Sushil Kumar Trehan, son-in-law of the Managing Director of the company, was in-charge of procuring supplies of Haldi & Chillies for the assessee. He was not paid any remuneration for the services rendered by him. In the process of procuring the supplies of Chillies and Haldi for the assessee Shri Sushil Kumar Trehan received secret commission @ Rs.5/- per Kg. for Chillies and Rs.3/- per Kg. for Haldi for himself. He had surrendered amount of secret commission in his return of income. Therefore, no addition could be made in the hands of the assessee. However, the DRP was of the view that the explanation offered by the assessee was an afterthought. The disclosure of unaccounted income in the hands of Shri Sushil Kumar Trehan could be for any reason but it did not explain in any way the action of the assessee in inflating its purchase of chilli and haldi. 59

I.T.A.Nos.4576, 4577 & 4578/Del/2010 The fact remained that Shri Trehan was neither a director nor an employee of the assessee company. In fact the price of Chilli and Haldi at the prevailing market rate on the date of all these supplies was lower by Rs.5/- per kg in case of chilli and Rs.2/- per kg. for haldi when these have been purchased by the assessee. The inflated price had been received by the assessee as kick back through Shri Trehan who is a close relative of the Managing Director of the company. The amount received as kick back from the suppliers of chilli and haldi had actually been received by the MD/Directors of the company through Shri Sushil Kumar Trehan. The DRP further mentioned that the assessee had not shown any evidence that Shri Sushil Kumar had actually worked for the assessee for procurement of Chili and Haldi or for supplier to justify any receipt of commission by Shri Trehan from the suppliers. The story of Shri Trehan receiving the secret commission from the suppliers of chili and haldi had been advanced only to protect the company whose MD and Directors were close relative of Shri Sushil Kumar Trehan. The DRP accordingly rejected the objections raised by the assessee in respect of additions proposed by the AO on account of inflation of expenses.

I.T.A.Nos.4576, 4577 & 4578/Del/2010

33. Before us the learned AR of the assessee referring observation of DRP in respect of disclosure of unaccounted income in the hands of Shri Trehan could be for any reason, it has been submitted that this observation is incorrect because the income was disclosed by Shri Sushil Kumar Trehan as it was earned by him and documents mentioning the said income were seized from his possession. It is incorrect on the part of the DRP to conclude that the assessee had received kick-back through Shri Trehan since no document evidencing such receipt was found during the course of search operation from any of the premises of the assessee. However, this statement is contradictory to the earlier findings of the DRP that kick back was received by the company. If the kick back has been received by the directors then it should be added in their hands and not in the hands of the company. During the course of search no document has been found to show that said kick back was received either by the assessee or by the directors of the assessee company. Shri Sushil Kumar Trehan in reply to question No.4 has stated that he looked after the procurement of raw material like Chillies, Haldi and Jeera etc. It has further been submitted that the DRP on one hand has held that no evidence was shown to prove that Shri Sushil Kumar Trehan worked for the procurement of Haldi & Chillies. On the other hand, it puts an allegation that kick back was received by the assessee and then in the 61 I.T.A.Nos.4576, 4577 & 4578/Del/2010 next line it puts an allegation that kick back was received by the directors of the company. Therefore, the findings of the DRP are contradictory and cannot be relied upon. It was further submitted that income on the basis of Page Nos. 40, 51 & 89 has been declared by Shri Sushil Kumar in his return of income u/s 153A of the Act. Therefore, the same cannot be added in the hands of the assessee. The learned AR of the assessee further submitted that the AO had made addition of Rs.1,13,71,759/- for over invoicing of Chillies and Haldi by considering the quantity of said items purchased during the entire year by the assessee company. Thus the addition again made for over invoicing of purchase of chillies and haldi on the basis of seized material referring to the intermediate period amounts to double addition because even the quantity purchased during the period to which the seized material referred have already been considered in the addition made for over invoicing by ground No.4. Thus the addition of Rs.54,48,600/- is a case of two tier double addition. Firstly, the sum of Rs.23,36,100/- forms part of Rs.31,12,500/-. Thus added twice to that extent and secondly, even the composite sum of Rs.54,48,600/- is covered in the overall addition of Rs.1,13,71,759/- proposed on account of alleged price inflation of purchases. As regards Page Nos. 14 to 22 of Annexure A-4/O-18 seized from the possession of Shri Sushil Kumar Trehan from the premises of Mata Chanan 62 I.T.A.Nos.4576, 4577 & 4578/Del/2010 Devi Hospital, the said pages have been owned up by Shri Sushil Kumar and income on the basis of such documents has been declared in his return of income and therefore, no adverse cognizance of the same could be taken against the assessee. Further these transactions relate to Rs.3/- and Rs.5/-, inflation for which an overall addition of Rs.1,13,71,759/- as per ground No.4, has been made in the hands of assessee for total quantity purchased during the year. The said addition was arrived at by multiplying the said differential rates of Rs.5/- and Rs.3/- per Kg. with the total quantity of Chillies and Haldi respectively purchased during the period concerned as per books of accounts of the assessee. Thus this action of the Assessing Officer shows that the quantities found recorded in the impugned seized documents stands accepted by the Department as duly recorded in the books of account.

34. On the other hand, the learned CIT-DR relying on the assessment order submitted that the parties such as Karni Sons, Karni Industries and Jiteseh Kumar Bhupesh Kumar were systematically inflating the purchases @ Rs.3/- per Kg. in the case of Haldi and Rs.5/- per Kg. in the case of Chilies. All the evidences in respect of such manipulation were seized from the custody of Shri Sushil Kumar Trehan either at his residence or at his business premises. He had admitted in his statement that there was inflation 63 I.T.A.Nos.4576, 4577 & 4578/Del/2010 of purchases. He had also admitted that money was siphoned from the account of assessee company and was invested by its suppliers as per the directions given by the assessee company. Subsequently at the time of search Shri Rajiv Gulati admitted these facts when he confirmed the disclosure given by Shri Sushil Kumar Trehan. The fact that the directors of the company admitted to such discrepancies in the records and in the statements given by them where not only they admitted the discrepancy in the record of the assessee but also giving huge disclosure of undisclosed income.

35. We have heard both the parties and gone through the material available on record. During the course of search Shri Sushil Kumar Trehan has admitted that he was purchasing Haldi, Chillies and Jeera on behalf of the assessee company. There is no dispute about the fact that those papers containing over invoicing were found from his custody. It is also a fact that Shri Sushil Kumar Trehan was not paid any remuneration. Shri Rajiv Gulati in his statement admitted that there was no such practice in MDH Ltd. to inflate the purchases. He also admitted that those transactions were made by Shri Sushil Kumar on his own account and initially to escape the liability of tax on the basis of those papers, he made statement that purchase inflation 64 I.T.A.Nos.4576, 4577 & 4578/Del/2010 was on account of purchases done by MDH Ltd. It was further stated by Shri Rajiv Gulati that income arising from those papers was admitted by Shri Sushil Kumar Trehan. Shri Rajiv Gulati also stated that Shri Sushil Kumar Trehan was involved in supply of raw spices to the MDH for his own benefit. ITAT Delhi Bench `E' in order dated 29th October, 2010 has held that Shri Sushil Kumar was engaged in the procurement of Haldi and Chilies. No remuneration was paid to Shri Sushil Kumar Trehan for services rendered by him by way of procurement. The statement recorded by the DDIT was not confronted to the assessee. It was held that it could not be said that amounts of Rs.3/- per Kg. and Rs.5/- per Kg. in respect of Haldi and Chilies, which had been admitted by Shri Sushil Kumar Trehan in his return of income had come to the assessee. No such evidence during the course of search was found from the possession of the assessee indicating that actual beneficiary of over invoicing was the assessee. It was also held that since the addition has been made in the hands of Shri Sushil Kumar, no disallowance to that extent could be made in the hands of the assessee. Moreover, transactions involving over invoicing were found in the A.Y. 2005-06. It has been held that since income has been assessed in the hands of Shri Sushil Kumar Trehan, the amount to that extent is in the nature of commission income and becomes expenditure in the hands of the assessee 65 I.T.A.Nos.4576, 4577 & 4578/Del/2010 particularly when no evidence suggesting that over invoicing was done at the instance of the assessee was found.

36. We also find that entries recorded on Page 89 are in respect of total quantity of supplies made to MDH (Delhi & Gurgaon) at 6225 Kgs. whereas entries recorded on Page 51 are in respect of 4672.20 Kgs. The over invoicing in respect of entries recorded on Page 51 amounting to Rs.23,36,100/- is included in the entries made at Page 89 of Rs.31,12,500/- . Therefore, once addition of Rs.31,12,500/- is made no separate addition in respect of Rs.23,36,100/- is to be made. Further, we also find that the AO had made addition of Rs.1,13,71,759/- on account of inflation in purchases of Chilies and Haldi. The addition of Rs.54,48,600/- is also in respect of inflation of purchases which has been found to be recorded at ages 51, 52 and 89. Since the addition of Rs.1,13,71,759/- has been made which includes the sum of Rs.54,48,600/-, in our considered opinion, no separate addition should have been made. We accordingly delete the addition of Rs 54,48,600/-

37. Ground No.5 (b) relates to addition of Rs.35,99,840/- made on the basis of Page Nos. 14 to 22 of Annexure A-4/O-18 for purchase inflation in 66 I.T.A.Nos.4576, 4577 & 4578/Del/2010 Haldi and Chillies. During the course of search loose papers containing purchases made from Karni Sons, Jitesh Kumar Bhupesh Kumar, Karni Enterprises were found. These documents pertain to purchases of Haldi and Chillies made on behalf of MDH Ltd. The AO on the basis of entries recorded on loose papers of Annexure A-4/O-18 made the additions as below:-

Sl.No.         Page No.    Name of the Person               Amount.

1.               14        Karni Sons                     Rs.19,03,530/-
2.               15        Jitesh Kumar Bhupesh Kumar     Rs. 7,02,810/-
3.               19        Karni Enterprises              Rs. 5,00,000/-
4.               21        Jitesh Kumar Bhupesh Kumar     Rs. 4,93,500/-
                                                          ------------------
                                             Total        Rs.35,99,840/-
                                                          -------------------

38. During the course of assessment proceedings it was submitted by the assessee that these papers were found from the possession of Shri Sushil Kumar from the premises of Mata Chanan Devi Hospital. The entries recorded on the said papers have been owned up by Shri Sushil Kumar and have been declared in his return of income. These entries relate to over invoicing by Rs.5/- in respect of Chillies and Rs.3/- in respect of Haldi. It was also submitted that the transactions recorded at Pages 14, 15, 19 & 21 relate to Rs.3/- and Rs.5/- inflation for which an overall addition of Rs.1,13,71,759/- has been made in the hands of the assessee for total 67 I.T.A.Nos.4576, 4577 & 4578/Del/2010 quantity purchased during that year. The said addition was arrived at by multiplying said differential rates of Rs.3/- and Rs.5/- per Kg. with the total quantity of Chillies and Haldi respectively during each previous year. The AO rejected the contention of the assessee on the ground that Shri Sushil Kumar could not take such decision without the consent of the directors of the company as he held no position in the company. If he had indulged in such unauthorized activity, how it was not detected by the assessee for long. The AO therefore, concluded that over invoicing was done on behalf of the assessee by the person in-charge of managing company like directors. Moreover, Shri Sushil Kumar was completely dependent on the assessee and since he was partner with Mahashay Dharam Pal, the Chairman in two firms namely M/s. Ganga Jamuna Trading Agency and M/s. Din Bandhu Traders engaged in holding agencies and trading in spices of the assessee. The AO therefore, rejected the reply and added the amount in the hands of the assessee.

39. The assessee raised objections before the DRP. Since the issue was identical to the addition of Rs.54,48,600/-, the DRP upheld the addition by rejecting the objections raised by the assessee.

I.T.A.Nos.4576, 4577 & 4578/Del/2010

40. Before us the learned AR of the assessee submitted that the documents were seized from the possession of Shri Sushil Kumar from the premises of Mata Chanan Devi Hospital. The said pages have been owned up by Shri Sushil Kumar and income on the basis of such documents had been declared in his return of income and therefore, no addition could be made in the hands of the assessee. It was also submitted that the addition of Rs.35,99,840/- was part of overall addition of Rs.1,13,71,759/-. Therefore, no separate addition could be made. Otherwise it would amount to double addition. The learned CIT-DR on the other hand submitted that contention of the assessee that both the papers were related to Shri Sushil Kumar is not correct. The assessee had inflated the purchases and therefore, the AO had issued questionnaire to the assessee. The assessee's explanation was not found to be acceptable. Therefore, the AO as well as the DRP were justified in making the addition in the hands of the assessee.

41. We have heard both the parties and gone through the material available on record. The facts relating to this ground are identical to the ground relating to addition of Rs.54,48,600/-. For the same reasons it is held that no addition can be made in the hands of the assessee when Shri Sushil Trehan has owned up the papers found in his possession. He was collecting 69 I.T.A.Nos.4576, 4577 & 4578/Del/2010 Rs.5/- and Rs.3/- per Kg. in respect of Chillies and Haldi without the knowledge of management. Moreover, this addition is also part of addition of Rs.1,13,71,759/-. Therefore, the addition of Rs.35,99,840/- amounts to double addition. Therefore, in our considered opinion addition is not required in the hands of the assessee. We, therefore, delete the addition of Rs35,99,840/-.

42. Next issue for consideration relates to addition of Rs.37,35,000/- on account of unexplained investment by way of donations for construction of school building at Byadgi in Karnataka. During the course of search Pages 41 & 42 of Annexure A-4/O-18 were seized from the premises of Mata Chanan Devi Hospital. On these pages date-wise cash received from MDH account and donations given are mentioned. At Page 41 there were cash donations from 3rd May, 2004 to 3rd November, 2004 amounting to Rs.10,60,000/-. On Page 42 there was cash donations from 2.04.2004 to 14.11.2004 amounting to Rs.21,75,000/-. There was another entry of Rs.5 lakh on 19.10.2004 paid by cheque. The AO required the assessee to explain the donations mentioned on Pages 41 & 42 of Annexure A-4/O-18. It was submitted by the assessee that the donations were made out of unaccounted income declared by Shri Sushil Trehan. As regards donation of Rs.5 lakh on 70 I.T.A.Nos.4576, 4577 & 4578/Del/2010 19.10.2004 it was stated that the same was verifiable from the books of the assessee but no such evidence was filed by the assessee with the reply. The explanation offered by the assessee was considered by the AO as an afterthought on the ground that the words written on Page 42 were "Cash from MDH Account". The AO further noted that the company was maintaining separate cash account. The assessee had admitted that the cash amount of Rs.28,75,000/- on Page 42 of Annexure A-4/O-18 was of Shri Sushil Kumar and not the assessee. If a particular income belongs to the assessee and if the same is declared by another person, even then it is assessable in the hands of the assessee. The words "MDH Account"

signifies that cash of Rs.28,75,000/- belonged to the assessee. Therefore, it should be added in the hands of the assessee. The AO further observed that out of Rs.28,75,000/-, Rs.7 lakh was paid on 15.01.2004 and the amount of Rs. 21,75,000/- was relatable to assessment year under consideration. As regards entries recorded on Page 41, the AO observed that the assessee had not brought any evidence on record to show that the sum of Rs.5 lakh was duly recorded in the books of account. If that was so the assessee would have claimed the same for deduction u/s 80G. Since the assessee was not able to explain the total cash of Rs.15,60,000/- (Rs.10,60,000 + 5,00,000) pertaining to the assessment year 2005-06, true nature of these documents 71 I.T.A.Nos.4576, 4577 & 4578/Del/2010 was not established. The presumption as per sec. 292C of the Act was that the paper belonged to the assessee and its contents were proved. The AO therefore, made the addition of Rs.37,35,000/-( Rs. 21,75,000/- + Rs.15,60,000/-).

43. The assessee raised objection before the DRP. The DRP rejected the objections raised by the assessee on the ground that the addition made was based on seized papers.

44. Before us it was submitted that Pages 41-42 of Annexure A-4/O-18 contain details of donations collected by Mahashay Chunni Lal Charitable Trust and the same were found from the premises of Mata Chanan Devi Hospital from the possession of Shri Sushil Trehan who had owned up said documents and had given cash donations of Rs.11.3 lakh and Rs.28.75 lakh noted therein out of his undisclosed income. The cash book of Shri Sushil Kumar Trehan for such period clearly shows that all donations totaling into Rs.52.85 lakhs (Rs.11.3 lakh + 28.75 lakh + 12.80 lakh) had been recorded as paid out of undisclosed income declared by him u/s 153A of the Act. As regards the amount of Rs.5 lakh it was submitted that the same was paid through bank account of Mahashay Chunni Lal Charitable Trust. Photocopy 72 I.T.A.Nos.4576, 4577 & 4578/Del/2010 of the receipt issued by Byadgi Unit and its bank account clearly showed the receipt of the said sum from its Delhi Head Office which are placed at Pages 540-543 of the Paper Book. The said DD was not got made by the assessee (MDH Ltd) but by the Delhi HO of the Trust, which is located in the same premises at Kirti Nagar as that of the assessee company. It was therefore, submitted that the donation was not made by the assessee. It was further submitted that the amount of Rs.11.3 lakh and Rs.28.75 lakh had been paid out of unaccounted income which was admitted by Sh. Sushil Kumar Trehan. Once the income based on source has been taxed, the same cannot be added when it is utilized. It was further submitted that the papers were not seized from the assessee and did not belong to the assessee but to the trust. Therefore, no addition could be made in the hands of the assessee. On the other hand, the learned CIT-DR supported the orders of the Assessing Officer as well as of the DRP.

45. We have heard both the parties and gone through the material available on record. There is no dispute about the fact that pages 41 & 42 of Annexure A-4/O-18 were seized from the premises of Mata Chanan Devi Hospital from the possession of Shri Sushil Kumar Trehan who had owned up the said documents. No evidence was found during the course of search 73 I.T.A.Nos.4576, 4577 & 4578/Del/2010 to establish that the donations were made by the assessee out of undisclosed income. Rather Shri Sushil Kumar Trehan had owned up the entries recorded on Pages 41-42 of Annexure A-4/O-18. Shri Sushil Trehan had donated the amount out of undisclosed income declared by him under sec. 153A of the Act.

46. We have gone through Page 40 of Annexure A-4/O-18. On this page amount received relates to assessment years 2003-04 and 2004-05. The total receipts are of Rs.85,88,372/- including the amount of Rs.11.30 lakhs and Rs.28.75 lakhs. Thus the source of income out of which the payment of Rs.11.30 lakhs and Rs.28.75 lakhs has been made exists in earlier years. Therefore, the amount of Rs.10.60 lakhs and Rs.21.75 lakhs which is part of Rs.11.3 lakhs and Rs.28.75 lakhs respectively cannot be assessed in A.Y. 2005-06 as the source of the income pertains to earlier years. As regards the amount of Rs.5 lakhs, Pages 540 and 541 are receipts of Rs.5 lakh which has been received by Demand Draft No.767248 dated 5.03.2004 from Mahashay Chunni Lal Charitable Trust. We have also gone through the bank statement of Mahashay Chunni Lal Charitable Trust with Syndicate Bank which gives the details of Rs.5 lakhs debited to the account. Rs.5,00,000/- has been paid on 19.10.2004 from the bank account of Mahashay Chunni Lal Charitable 74 I.T.A.Nos.4576, 4577 & 4578/Del/2010 Trust. Therefore, Rs.5,00,000/- payment pertained to Mahashay Chunni Lal Charitable Trust. There is nothing on record to suggest that these amounts had been paid by the assessee. Thus the source of income of Rs.10.60 lakhs which is part of Rs.11.30 lakhs and Rs.21.75 lakhs which is part of Rs.28.75 lakhs falls in assessment year 2004-05 and Rs.5,00,000/- was paid from Bank Account of Mahashay Chunni Lal Charitable Trust. Therefore, no addition can be made in the hands of the assessee company. The assessing officer has invoked the provisions of section 292C for the presumption that the said papers were seized from the possession of the assessee and contents thereof were correct. Section 292C was inserted by the Finance Act, 2007 w.r.e.f. 1.10.1975 and reads as under:

" 292C. Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search under section 132, it may, in any proceeding under this Act, be presumed--

(i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person;

(ii) that the contents of such books of account and other documents are true; and

(iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested."

I.T.A.Nos.4576, 4577 & 4578/Del/2010 There is no dispute that Pages 41-42 of Annexure A-4/O-18 were seized from the office of sh. Sushil Kumar Trehan located in Mata Chanan Devi Hospital. Thus as per provisions of section 292C the presumption is that said documents relate to Sh. Sushil Kumar Trehan and not to the MDH Ltd., the assessee. Hence the assessing officer has wrongly applies the provisions of section 292C. Provisions of section 292C support the case of Sh. Sushil Kumar Trehan. We accordingly delete the addition.

47. Next issue for consideration relates to addition of Rs.44,98,279/-. During the course of search pages 45 to 49 were seized which formed part of Annexure A-4/O-18. Annexure A-4/O-18 was seized from the possession of Shri Sushil Kumar Trehan from the premises of Mata Chanan Devi Hospital and contains expenses incurred on construction of school building at Byadgi. The said School belongs to Mahashay Chunni Lal Charitable Trust, an independent assessee. On a query it was submitted that the assessee company had no connection with said papers which were found from the possession of Shri Sushil Trehan. It was also stated that it was incorrect to say that the assessee company was inflating purchases in order to invest in construction. Shri Sushil Kumar Trehan in his statement recorded on oath 76 I.T.A.Nos.4576, 4577 & 4578/Del/2010 on date of search had admitted while replying question No.23 that expenses in school building were out of books. The AO further observed that in the past completed assessment it had been held that on the basis of seized record that M/s. MDH Ltd. was inflating expenses and investing in properties. Mahashya Dharam Pal was the main person behind the Trust. The AO further observed that Mahashya Dharam Pal was also Chairman and main deriving force behind the assessee company. All other companies were dependent on the assessee company for their activities. Therefore, the AO concluded that Shri Sushil Kuamr Trehan had been made fall guy that is how he had owned up all the transaction. The AO therefore, made addition of Rs.44,98,279/- (Rs.17,57,274 + 27,41,005).

48. The assessee objected to the proposed addition before the DRP. Before DRP it was submitted by the learned AR of the assessee that school belongs to Mahashaya Chunni Lal Charitable Trust and if any addition is required to be made on account of these papers, should be made in the hands of the trust only. This contention of the assessee was rejected on the ground that the expenditure on construction of school building at Byadgi was being made by the assessee. The addition on account of unexplained expenditure in school also has to be made in the hands of the assessee. Moreover on 77 I.T.A.Nos.4576, 4577 & 4578/Del/2010 seized paper No.45 to 50, it was nowhere mentioned that non-account expenditure was incurred on school building at Byadgi belonging to the trust. It was therefore, for the assessee to show that this expenditure was in relation to school building at Byadgi for which separate addition has been made in the case of the trust by the AO on the basis of valuation report of the Valuer. DRP further noted that it was not even clear as to which school the unaccounted expenditure was related. It was the assessee to establish this fact. Since the assessee had failed to produce such evidence, the addition proposed to be made in the hands of the assessee was upheld.

49. Before us it was submitted by the assessee that said papers were seized from the possession of Shri Sushil Kumar Trehan from the premises of Mata Chanan Devi Hospital and contained the expenses incurred on construction of school building at Byadgi. The said school belongs to Mahashaya Chunni Lal Charitable Trust, an independent assessee to whom notice under sec. 148 was issued by the AO for assessment year 2005-06, a copy of which is placed at Pages 566 to 568 of the Paper Book. It was further submitted that the amounts were spent out of donations of Rs.11.30 lakhs and Rs.28.75 lakhs received y the Trust as mentioned on Pages 40 to 42 of Annexure A-4/O-18. It was also submitted that Rs.7 lakhs mentioned 78 I.T.A.Nos.4576, 4577 & 4578/Del/2010 as cash from MDH Account on 15.01.2004 and the same has been utilized for purchase of land on 17.01.2004 which means that the said investment in school building was out of the said sum. The donations were given by Shri Sushil Kumar Trehan out of his undisclosed income and therefore, no addition could be made in the hands of the assessee. It was further submitted that addition of Rs.37,35,000/- has been made in the year in which income was earned and therefore, no separate addition for the utilization of the said amount could be made as it would tantamount to double addition which is not permissible by law. It was therefore, submitted that addition for utilization of donations received by the Trust in the hands of the assessee should be deleted because those transactions do not pertain to the assessee and addition of the said amount will lead to double addition.

50. We have heard both the parties and gone through the material available on record. Page 45 of Annexure A-4/O-18 placed at Page 424 of the Paper Book contains details of Rs.27,41,005/-. This page does not contain name of the person from whom the money of Rs.27,41,005/- had come for investment in school building. Pages 46 to 49 contain details of expenditure of Rs.17,57,274/-. There is no name of any person from whose account the money has come for investment in school building. There is no 79 I.T.A.Nos.4576, 4577 & 4578/Del/2010 indication on these pages that amount of Rs.44,98,279/- has come from the account of the assessee company. Therefore, no addition can be made in the hands of the assessee company. The contention of the assessee that amount has been spent out of undisclosed income earned by Shri Sushil Kumar Trehan has been brushed aside merely on presumption that the amount of Rs.44,98,279/- has come from the coffers of the company. Since the school is owned by Mahashaya Chunni Lal Charitable Trust the addition can be made if at all, in the hands of the trust and not in the hands of the assessee when there is no indication on the papers placed at Pages 45 to 49 of the Annexure A-4/O-18 to the effect that the amount of Rs.44,98,279/- has come from the coffers of the assessee company. Accordingly in our considered opinion addition in the hands of the assessee was not justified. We accordingly delete the addition.

A.Y. 2006-07

51. Next issue for consideration relates to addition of Rs.12,36,300/- towards inflation in expenses based on Pages 14-22 of Annexure A-4/O-18. This addition is identical to ground No.5 of assessment year 2005-06 wherein issue relating to addition of Rs.35,99,840/- has been discussed. In assessment year 2005-06 we have deleted the addition. For the same reasons 80 I.T.A.Nos.4576, 4577 & 4578/Del/2010 the addition made in assessment year 2006-07 deserves to be deleted. We order accordingly.

52. Next issue for consideration relates to addition of Rs.50,00,000/- towards unexplained investment on account of contribution of capital in a partnership firm made by the two directors of the assessee company on the basis of entries recorded on Page No.82 of AnnexureA-4/O-18 which is placed at Page 454 of the Paper Book. During the course of search a letter from M/s. Vinayak Traders giving the details of balance with New Delhi account(1,22,17,083.00) and Gurgaon account(34,44,461.00) totaling to Rs.1,56,61,544/- was found and seized. There is credit entry of Rs.50 lakh which has been divided equally between Mahashayaji and Shri Rajivji's capital account i.e. Rs.25 lakh each. The assessee was asked to explain the source of Rs.50 lakhs and also the source of balance amount of Rs.1,06,61,544/-. The assessee in response to the above noted query stated that the said transactions were duly recorded in the books of assessee and hence no addition was required to be made. However, the assessing officer proposed the addition of Rs 1,56,61,544/-.

I.T.A.Nos.4576, 4577 & 4578/Del/2010

53. Before DRP it was explained that entries on seized page 82 were actually reflected in the books of account of the assessee. In support of his argument the learned AR of the assessee referred to Paper Book Pages 551 to 561 of Paper Book. It was submitted that Page 551 of the Paper Book is the account of M/s. Vinayak Traders a supplier of assessee (Gurgaon office A/c of the assessee ) and Page 552 of the Paper Book is the copy of account of M/s. Vinayak Traders (Delhi office A/c) of the assessee. It was submitted that the closing balance of Rs.34,44,461/- in Gurgaon office A/c as on 7/12/05 and the closing balance of Rs.1,22,17,083/- in Delhi Office A/c as on 6/12/2005 is reflected on letter dated 9.12.2005 and the sum of Rs.50,00,000/- is sum total of two entries of Rs.25 lakhs each which is the capital contribution of Mahashayaji which is a reference to the MD of the company who is known as Mahashayaji and Rajivji which is a reference to the director of the assessee company. The DRP however noted that the submissions of the AR that these were the closing balance of the account of M/s. Vinayak Traders dealing with assessee's Gurgaon office and Delhi Office were found to be correct. The closing balances were actually reflected on Pages 79 & 80 of the seized documents itself which were the account of M/s. Vinayak Traders in assessee's Gurgaon and Delhi office. Both these accounts were date-wise account of the receipt of invoices with 82 I.T.A.Nos.4576, 4577 & 4578/Del/2010 clear indication of invoice numbers and the details of the payments by cheque numbers and draft numbers. The closing balance of 7/12/2005 and 6/12/2005 from assessee's account was also proved by the date of the letter of M/s. Vinayak Trader which was seized at Page 82. The date of letter is 9/12/2005 i.e. 2-3 days after the date of closing balance. However, the AR of the assessee had not been able to show with reference to books of account any account of Rs.25 lakhs each totaling to Rs.50 lakhs paid to M/s Vinayak Trader on behalf of Mahashayaji and Shri Rajivji's capital account. Accordingly, objection raised by the assessee was rejected. The assessing officer was directed to make addition of Rs 50,00,000/- as unexplained investment.

54. Before us it was submitted that no query was raised regarding the amount of Rs.50 lakhs from the assessee. The seized paper clearly mentions the names of the partners of the firm whose capital account has been credited. The name of the assessee has not been mentioned as partner. Since the transactions undertaken by the assessee with the said firm have been duly recorded in the books of account of the assessee company, no adverse cognizance could be taken against the assessee. Shri Dharam Pal Gulati and Shri Rajiv Gulati were two separate assessees than the company 83 I.T.A.Nos.4576, 4577 & 4578/Del/2010 and were also assessed by the same Assessing Officer. If the Assessing Officer was not satisfied, then the addition, if any, could have been made in their hands and not in the hands of the assessee. It was also submitted that on perusal of balance-sheet of M/s. Vinayak Traders as on 31st March, 2005 at Page 548 of the Paper Book, it would be seen that it shows that capital of Rs.25,05,000/- has been introduced by each of the partner and the assessee company is not partner therein. The DRP accepted that said sum was paid by Mahashayaji and Rajivji as capital in the said firm. Ld AR of the assessee, therefore, submitted that since the said amount was paid by two persons who are independently assessed, no addition could be made in the hands of the assessee. Thus the addition of Rs.50 lakhs could not be made in the hands of the assessee.

55. Ld. CIT-DR has submitted that the AO proposed addition of Rs.1,56,61,544/- based on entries of Rs.1,22,17,083/- against New Delhi and Rs.34,44,461/- against Gurgaon on the basis of entries recorded on Page 82 of the seized material a letter dated 9.12.2005 from M/s. Vinayak Traders. However, the DRP noted that the AR has not been able to show with reference to books of accounts the amount of Rs.25 lakhs each totaling to Rs.50 lakhs paid to M/s. Vinayak Traders on account of capital contribution 84 I.T.A.Nos.4576, 4577 & 4578/Del/2010 by Mahashyaji and Rajivji. Accordingly, the assessee's contention regarding the amount of Rs.50 lakhs was to be rejected. The AO in view of DRP's order made the addition of Rs.50 lakh. The learned CIT-DR submitted that the DRP has upheld the addition and therefore, the addition has to be upheld. It was also submitted that the decision of ITAT Mumbai in the case of Dregging International is not applicable to the facts of the assessee's case. The learned CIT-DR further submitted that the AO had not examined the case in right perspective and therefore, it should go back to the AO for fresh examination.

56. The assessee in rejoinder submitted that the amount of Rs.50 lakhs represents capital of Mahashaya Dharam Pal and Shri Rajiv Gulati. The addition made is different from the amount for which addition of Rs.1,56,61,544/- was proposed by the AO and therefore, the DRP cannot issue directions to make addition for such amount. Further, the said amount belongs to two persons who are separate assessees who contributed the amount as capital in the firm duly declared in their books and seized material also. Therefore, no adverse view can be taken against the assessee. 85

I.T.A.Nos.4576, 4577 & 4578/Del/2010

57. We have heard both the parties and gone through the material available on record. We have gone through the entries made on Page 82 of Annexure A-4/O-18. From the entries made it is clear that the amount of Rs.1,22,17,083/- was due from New Delhi Account and Rs.34,44,461/- from Gurgaon Account. The balance as on 9.12.2005 tallies with the accounts of M/s Vinayak Traders Delhi and Gurgaon office in the books of MDH Ltd. Therefore, DRP was right in not approving the addition of Rs 1,56,61,544/-. M/s Vinayak traders is a partnership firm of three partners namely Shri Mahashaya Dharam Pal Gulati and Shri Rajiv Gulati and Sh. Suresh Patil. This firm was purchasing Haldi and Chillies for MDH Ltd. In balance sheet of M/s Vinayak Traders Capital accounts of Shri Dharam Pal Gulati and Shri Rajiv Gulati have been credited by sum of Rs 25,05,000/- each. The amount of Rs.50 lakhs has been transferred from outstanding balance of M/s Vinayak Traders in the capital account of Shri Mahashaya Dharam Pal Gulati and Shri Rajiv Gulati i.e. Rs.25 lakhs each. Sh. Suresh patil has sent the account in layman's way after capital contribution by Sh. Dharam pal Gulati and Sh. Rajiv Gulati amount due was 1,06,61,544/-. Because this the amount of Rs.50 lakhs has been reduced from the figure of Rs.1,56,61,544/-. Therefore, the amount of Rs.25 lakhs each in the names of the partners has been contributed them. In case the amount is not explainable the addition 86 I.T.A.Nos.4576, 4577 & 4578/Del/2010 should have been in the hands of partners and not in the hands assessee. Accordingly no addition can be made in the hands of the assessee.

58. In the Draft assessment order the AO has proposed addition of Rs.1,56,61,544/- which was based on the outstanding amount in respect of MDH Delhi and MDH Gurgaon. The DRP has not approved the addition of Rs.1,56,61,544/-. However, they have approved the addition of Rs.50 lakhs credited to the account of the partners. According to ld AR of the assessee DRP cannot suggest fresh addition other than referred to by the assessing officer. Under section 144C(8) DRP has power to confirm, reduce or enhance the variation proposed in draft order. However, Finance Act 2012 has inserted Explanation to section 144C(8) w.r.e f 1.4,2009 that DRP has power to consider any matter arising out of drat assessment order. Hence we do not find any infirmity in the order directing the addition of Rs 50,00,000/-. Hence legal issue raised by the assessee is rejected.

59. Next issue for consideration relates to addition of Rs.51,44,224/- made on account of unexplained investment in school Building at Byadgi on the basis of DVO's report. The AO vide questionnaire dated 23rd October, 2009 forwarded copy of valuation report valuing school building at 87 I.T.A.Nos.4576, 4577 & 4578/Del/2010 Rs,75,86,000/- as on 31.3.2006. In the books of account of the Trust the investment in the school was shown at Rs.24,41,776/- as on 31.3.2006, whereas the valuer had valued the same at Rs.75,86,000/-. Thus, there was an unexplained investment of Rs.51,44,224/- in the school. The assessee was asked to give the comments on the difference of investment value as declared for the income-tax purposes with supportive evidence. It was stated by the assessee that any question regarding valuation of building should be directed to the trust to which the school belongs and not to the assessee. The AO however, observed that the investment in school building and the trust are managed by the MDH or on its behalf by others connected with the business of MDH. The assessee as well as the trust was direct under the control of Mahashya Dharam Pal Gulati. The documents seized also prove the same and establish the link between investment in school and the assessee. He also noted that the assessee was avoiding the reply on the questions raised. Since the assessee was not able to discharge the onus of proving the source of investment in school building, the AO made addition of Rs.51,44,224/-.

60. Before DRP it was argued by the ld. AR of the assessee that school was being constructed by a charitable trust. The addition was made on the 88 I.T.A.Nos.4576, 4577 & 4578/Del/2010 basis of valuer's report in respect of investment in school building at Byadgi which was owned by the trust. Therefore, if any addition was required to be made it should have made in the hands of the trust. However, the DRP rejected the contention of the assessee. It was observed that Page Nos. 51, 82, 89, 14, 22, 41 & 42 of Annexure A-4/O-18 clearly showed that expenditure on construction of building had been made by the assessee. The school was being run in the name of family member of MD of the company. The DRP therefore, rejected the objections raised by the assessee and affirmed the Draft Assessment Order on this ground.

61. Before us the learned AR of the assessee submitted that school at Byadgi belongs to Mahashaya Chunni Lal Charitable Trust which is a separate assessee being assessed by the same AO. If the valuation of the said property owned by the said trust is found to be higher then the addition could be made in the hands of the said trust and not in the hands of the assessee. It was also submitted that notice u/s 148 was issued by the AO for the A.Y. 2005-06 to the said trust. Thus, the said pages do not pertain to the assessee and therefore, no addition of the said amount can be made in the hands of the assessee. It was further submitted that pages 45 to 49 of Annexure A-4/O-18 show some amount other than recorded in books has 89 I.T.A.Nos.4576, 4577 & 4578/Del/2010 been incurred on the said school for which addition of Rs.44,98,279/- has been made in Assessment Year 2005-06. Therefore, the addition of Rs.51,44,224/- includes the addition of Rs.44,98,279/-. It was also submitted that investment in the school building was made by Shri Sushil Trehan out of undisclosed income offered for taxation. The learned AR of the assessee further submitted that the people of village also contributed in the construction of school by way of labour or donation in kind which was not included in the cost declared in the books of account as there can be no entry for donations received in kind. Thus, higher valuation of school as compared to value in books was otherwise also fully justified. No addition is called for otherwise it would amount to double addition. The learned AR of the assessee further submitted that the DRP in its direction has stated that it was not mentioned on the seized Paper that non-account expenditure was incurred on the school building belonging to the above trust. It was for the assessee to show that this expenditure was in relation to school building at Byadgi, Karnataka. In this regard the learned AR of the assessee submitted that the papers were seized from the possession of Shri Sushil Trehan who had stated in reply to question No.3 of his statement that these pages pertained to school building construction at Byadgi, Karnataka. Shri Sushil Trehan had incurred expenditure for construction of school building out of 90 I.T.A.Nos.4576, 4577 & 4578/Del/2010 his undisclosed income. Therefore, it was established that the expenditure was incurred on school at Byadgi which was owned by the Trust and therefore, no separate addition can be made in the hands of the assessee.

62. Before us the learned CIT-DR supporting the order of the AO has submitted that additions based on DVO's report was unexplained investment which was only a quantification of undisclosed investment detected on the basis of seized material. The learned AR of the assessee in rejoinder submitted that the school does not belong to the assessee and therefore, no addition can be made in its hands. Notice u/s 148 had already been issued to the trust who is the owner of the said school.

63. We have heard both the parties and gone through the material available on record. There is no dispute about the fact that the AO had issued notice u/s 148 on the basis of valuation report for A.Y. 2005-06. There is also no dispute that school is owned by the trust. No evidence was found during the course of search that MDH Ltd. has incurred expenditure on construction of school building at Byadgi. On the contrary Shri Sushil Kumar has owned up the expenditure out of his undisclosed income. We have also gone through the reasons recorded u/s 148 for reopening of the 91 I.T.A.Nos.4576, 4577 & 4578/Del/2010 case of the trust. As per reasons recorded proceedings u/s 147 have been initiated on the basis of valuation report of the school building at Rs.75,86,800/-. The amount of Rs.75,86,800/- has been bifurcated in two assessment years i.e. Rs.36,26,490/- in A.Y. 2005-06 and Rs.39,60,310 in the A.Y. 2006-07. From these facts it is clear that the AO has issued notice u/s 148 for the A.Y. 2005-06 to the assessee. The amount of rs.36,26,490 which according to him has escaped assessment in A.Y.2005-06. The AO has also allotted Rs.39,60,310/- to A.Y. 2006-07. We have also gone through the balance-sheet of school as on 31st March, 2006 wherein school building expenditure was shown at Rs.24,41,776/-. Since the school belongs to Mahashaya Chunni Lal Charitable Trust, no addition in the hands of the assessee can be made based on valuation report. We accordingly delete the addition.

A.Y. 2007-08

64. Next issue for consideration in A.Y. 2007-08 relates to addition of Rs.15,00,000/- made on the basis of Page 51 of Annexure A-4/O-18. This issue is identical to ground No.5 for A.Y. 2005-06 wherein addition of Rs.54,48,600/- was involved. As per entry recorded on Page 51 of Annexure A-4/O-18 (1) Rs.9,50,000/- was transferred to school and (2) Rs.5,50,000/- was received and utilized for school building construction. 92

I.T.A.Nos.4576, 4577 & 4578/Del/2010 Page 51 contains transactions for the period related to January, 2004 to May, 2004. Therefore, no addition could be made by the AO in assessment year 2007-08. The AO observed that declaration of income due to inflation of expenses by Shri Sushil Kumar in his return of income would not absolve the assessee from addition because he was only acting on behalf of the assessee company. The AO therefore, treated the expenditure of Rs.15 lakhs in the A.Y. 2007-08 as unexplained. The AO accordingly, added the amount of Rs.15 lakhs in the A.Y. 2007-08.

65. The learned AR of the assessee however, submitted that the entries of Rs.9,50,000/- and Rs.5,50,000/- relate to A.Y. 2004-05 and 2005-06 and therefore, no addition can be made in A.Y. 2007-08. It was also submitted that Rs.9,50,000/- is payment out of Rs.23,36,100/- which was added in A.Y. 2005-06. Therefore, when addition for source has already been made, then an addition for its utilization cannot be made. It was further submitted that Rs.6.25 lakhs was utilized for purchase of land and Rs.3.25 lakhs aggregating to Rs.9,50,000/- was used for school construction as per details on Page 48 of annexure A-4/O-18 for which separate addition has been made in A.Y. 2005-06 and therefore, no separate addition for this amount can be made in the A.Y. 2007-08. Moreover, the payment has been made 93 I.T.A.Nos.4576, 4577 & 4578/Del/2010 out of undisclosed income of Shri Sushil Kumar Trehan and hence, no addition can be made in the hands of the assessee. On the other hand, the learned CIT-DR supported the order of the AO.

66. We have heard both the parties and gone through the entries recorded on page 51 of Annexure A-4/O-18. We find that the entrees on page 51 relate upto 15.05.2004. Some of the entrees relate to year ended on 31.03.2004. Thus the amount expended on construction of school building relate to assessment years 2004-05 and 2005-06. The source of income is commission of Rs 5/- per Kg of chilies charged by Sh. Sushil Trehan on purchases made by him for MDH Ltd. This commission has been assessed in his hands. The assessing officer has taken the additions for assessment year 2007-08 in view of presumptive provisions of section 292C of the Act. Under section 292C where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search under section 132, it may, in any proceeding under this Act, be presumed (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account and other documents are true; and (iii) 94 I.T.A.Nos.4576, 4577 & 4578/Del/2010 that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested. Thus section 292C of the Act does not empower the assessing officer to presume the income of a particular year as income of any other year. Therefore, the amount of Rs 15,00,000/- cannot be assessed in assessment year 2007-08. It can also not be assessable in the hands of assessee when such income has already been assessed in the hands of Sh. Sushil Kumar Trehan in earlier assessment years. We, therefore, delete addition of Rs 15,00,000/-.

67. The next issue for consideration relates to addition of Rs.12,46,90,000/- on account of daily operating bank balances. During the course of search loose papers numbered 1 to 55 were seized as Annexure A- 3/O-2 from the business premises of M/s. Super Delicacy Pvt. Ltd. at Gurgaon. Page 40 of Annexure A-3/O-2 contains entries date-wise. As per Assessing Officer the entries are in handwriting of Shri Daharam Pal Gulati 95 I.T.A.Nos.4576, 4577 & 4578/Del/2010 as it matches with the diary seized as A-2/O-1. The entries on this page were recorded in a typical manner. On every date top entry represents cash balance for the date and middle entry is cash receipt for the day. None of the entries were reflected in the books of account. Total of cash receipts as per Page 40 alone is at Rs.12,46,90,000/- for the period of four months in Financial Year 2006-07 relevant to asstt. Year 2007-08.

68. On a query it was explained by the assessee that Page No.40 of the Annexure A-2/O-1 contained balances in the bank account of Ludhiana Branch of MDH Ltd on the particular day mentioned therein. The assessee submitted photo copies of the bank statements in support of its contention. These figures were noted telephonically by Mr. Gupta, the accountant in Gurgaon Branch of MDH Ltd. On comparison of entries with bank statements the Assessing Officer found that only one entry tallied completely date-wise and deposit-wise. The Assessing Officer test checked 33 entries. Except a deposit of Rs.4,00,000/- on 22-08-2006 none of the other entries tallied. Since the assessee had inflated purchase of Haldi and Chillies and was also indulging speculation of agricultural commodities, gold etc., the Assessing Officer concluded that cash was generated by various means. Since the assessee was not able to explain entries relating to 96 I.T.A.Nos.4576, 4577 & 4578/Del/2010 cash account recorded on Page 40, the Assessing Officer added the amount of Rs.12,46,90,000/- as unexplained income.

69. The assessee objected to addition proposed by the AO before the DRP. The objections raised were treated of general nature by DRP and the proposed addition was approved.

70. Before us the learned AR of the assessee submitted that objections raised are placed at Pages 1060 to 2062. The DRP rejected the objections without considering them. The Ld. AR of the assessee further submitted that daily operating/available balances in HDFC Bank Account at Ludhiana Branch of the assessee were recorded by an accountant in Gurgaon to plan the amount available for disbursements. In HDFC Ludhiana branch the buyers in Punjab territory were depositing cheques directly. This exercise was undertaken by him on telephone daily to use those funds from Gurgaon Office as the cheque book for the said bank account was at Gurgaon only. The amounts were tallying daily in paisas also as per the bank statement. As regards the handwriting, the learned AR of the assessee submitted that the handwriting has not been examined by any handwriting expert before making an averment by the AO. The accountant has never been confronted. 97

I.T.A.Nos.4576, 4577 & 4578/Del/2010 All entries are mentioned on same page in similar manner. The assessee has submitted a chart showing appearance and reconciliation of the entries mentioned therein with the bank balance statement in Paper Book at Pages 595 to 597. The Ld. AR of the assessee, therefore, submitted that said seized pages were not statement of any parallel cash balances maintained on a day-to-day basis by the assessee as alleged presumably, but were rough sheets used for recording available/usable cash balance on day-to-day basis of the bank account duly declared in regular books of account. He, therefore, pleaded that the addition is totally superfluous and deserved to be deleted. On the other hand, learned CIT-DR supported the order of the AO.

71. We have heard both the parties and gone through the material available on record. The AO had added the amount of Rs.12,46,90,000/- on the basis of entries recorded on Page 40 of Annexure A-3/O-2 on the ground that the assessee was having large cash generated from unaccounted business. He also observed that the availability of cash date-wise recorded on Page 40 was tallying with the bank statement. On the other hand, the contention of the assessee is that the accountant of the company used to obtain telephonically the availability of cash in HDFC Bank, Ludhiana where the customers were deposing the cheques directly in the account. To 98 I.T.A.Nos.4576, 4577 & 4578/Del/2010 demonstrate entries the learned AR of the assessee explained entries before the AO as below:-

To illustrate the same, on the front side of page no. 40/A- 3/O-2 (marked as Side 'B' in the explanations given now), in the second column (marked as '1' now) closing balance of 21/8/06 (i.e. of the previous day) is stated on the third row as Rs.19,68,739.55, which is the clear / usable opening bank balance available on 22/8/06, Rs. 4,00,000/- stated just above it represents the value of the post-dated cheque dated 22/8/06 deposited on 21/8/06 in the bank, but which was not readily available for use on 21/8/06 as explained. The same is squarely verifiable from the copy of the bank statement of the relevant dates furnished herewith. Further, the sum of Rs. 19,43,739.55 stated right on top of the said two sums is the balance after reducing Rs. 25,000/- for cheque issued but not yet presented on 21/8/06 from the said available balance of Rs. 19,68,739.55. In fact, the two cheques of Rs. 7,500/- and Rs. 25,000/- issued prior to 21/8/06 were presented for payment in the bank on 21/08/06 and 22/8/06 respectively. Even these have been stated in column no. "1" and can also be verified from the bank statement. Accordingly, in the explanatory statement prepared for reconciling the balances as per the bank statement and as 99 I.T.A.Nos.4576, 4577 & 4578/Del/2010 per the seized loose paper, the said transactions for 21/8/06 have been reconciled as under :

      Particulars                                           Amount (Rs.)

Opening Balance as on 21/08/06                              19,76,239.55
as per Bank Statement
Add : Cheque dt. 22/8/06 deposited on 21/8/06                 4,00,000.00
                                                             23,76,239.55
Less : Cheque presented for payment                              7,500.00
Closing Balance as on 21/8/06
as per Bank Statement (marked B-I)                         23,68,739.55
Less : Post dated value cheque                               4,00,000.00
Closing Balance as on 21/8/06 (marked as B-1)              19,68,739.55
[Being the clear / usable balance available on the
next day (i.e. on 22/8/06) as recorded in column
'I' on 'B' side of the loose sheet]

Similarly, on the back side of page no. 40/A-3/0-2 (marked as Side 'A' in the explanations given now), in the first column (marked as 'I' now) closing balance of 11/10/06 (i.e. of the previous day) is stated on the third row as Rs. 30,05,244.55, which is the clear / usable opening bank balance available on 12/10/06. Rs. 20,50,000/- stated just above it represents the total value of two post-dated cheques of Rs. 15 lacs and 5.50 lacs dated 11/10/06 and 12/10/06 deposited on 10/10/06 and 11/10/06 as explained. The same is squarely verifiable from the copy of the bank statement of the relevant dates furnished herewith. Further, the sum of Rs. 15,05,244.55 stated right on top 100 I.T.A.Nos.4576, 4577 & 4578/Del/2010 of the said two sums is the balance before adding Rs. 15,00,000/- for cheque dated 11/10/06, deposited on 10/10/06 from the said available balance of Rs. 30,05,244.55 on 11/10/06 which is again verifiable from the bank statement itself. Accordingly, in the explanatory statement prepared for reconciling the balances as per the bank statement and as per the seized loose paper, the said transactions for 11/10/06 have been reconciled as under :

                   Particulars                              Amount (Rs.)


Opening Balance as on 11/10/06 as
per Bank Statement                                          43,05,244.55
Add : Cheque dt. 12/10/06 deposited on 11/10/06               5,50,000.00
                                                             48,55,244.55

Less: Cheque presented for payment                            13,00,000.00

Closing Balance as on 11/10/06 as
per bank statement (marked as A-1)                            35,55,244.55
Less : Post dated value cheque                                 5,50,000.00
Closing Balance as on 11/10/06 (marked as A-1)                30,05,244.55
[Being the clear / usable balance available on the
next day (i.e. on 12/10/06) as recorded in column
'I' on 'A' side of the loose sheet]

72. We have also verified the entries and we find that the entries recorded on Page 40 of Annexure A-3/O-2 relate to the bank account with HDFC Bank Ludhiana. The cash deposits taken on different dates tallied with the bank statement. For example on 24th August, 2006 the opening balance is 101 I.T.A.Nos.4576, 4577 & 4578/Del/2010 Rs.14,43,739.55 which is closing balance on 23rd August, 2006. The deposit of Rs.7,00,000/- on 23rd August which is mentioned on 24th August suggesting that the accountant was ascertaining the availability of cash for the use. Similarly the cash deposits as per these entries are reflected in the bank account. The assessee has explained the entries the manner in which the accountant was recording on the page. Therefore, the entries recorded are in respect of availability of cash for use in HDFC Bank Ludhiana and do not represent cash available with the assessee as alleged by the AO. We therefore, are in agreement with the contention of the assessee that the entries recorded on Page 40 to Annexure A-3/O-2 are in respect of HDFC Bank Ludhiana. The accountant has made entries in order to know the availability of cash on a particular date. Accordingly, no addition can be made in the hands of the assessee. The assessing officer had not referred the page 40 for hand writing expert to know as to who has made entries on this page. The opinion of the assessing officer that hand writing tallies with that of Sh. Dharam Pal Gulati is only guess or just presumption of the assessing officer. We accordingly delete this addition.

73. Next issue for consideration relates to addition of Rs.11 crores for discrepancy in closing stock. During the course of search certain papers 102 I.T.A.Nos.4576, 4577 & 4578/Del/2010 were found. The AO required the assessee to explain some of the 'words' and 'figures' mentioned against stock of Amchoor, Anardana and Ajwain. It was stated by the assessee that Annexure contained projections of expected sales in Kgs. and the position of stock whether it was surplus or deficit. It was stated that those sign (+) means excess expected stock. Finally it was stated that since these were expected figures, these were not entered in the books of account. This reply of the assessee was considered by the AO as self-serving reply. He observed that on the seized papers nothing like projections etc. was mentioned. Therefore, the reply of the assessee was rejected as no evidence was filed in support of the contention of the assessee. As regards Pages 78 to 82 of annexure A-6/O-1 it was explained by the assessee that said pages were print out of stock summary for A.Y. 2005-06 in respect of Kirti Nagar factory. It was stated that the stock register was produced. However, the AO observed that no such entries were recorded on the note-sheet. Therefore, the assessee could easily attach the copies of four pages of the stock register in support. The AO therefore, treated the bunch of papers 78 to 82 as unexplained. As regards Page 87 of Annexure A-8/O-1 the assessee was asked to reconcile the stock as on 30.10.2006 for various items like Agarbatti (54 cases), Dhoop Fancy (3084 cases), Hawan (375 cases), Manjan (76 cases), Mehandi (58 cases),Papad (1 103 I.T.A.Nos.4576, 4577 & 4578/Del/2010 case), Pouch (461 cases), Pouch Fancy (213 cases), Sachettes (115 cases), Soya tin (400 cases) totalling 4837 cases. The assessee gave the similar reply as was given in respect of Pages 78-82 of Annexure A-6/O-1. The AO again rejected the explanation offered by the assessee. As regards Annexure A-4/O-2 it was bunch of 147 papers. Page Nos. 39 to 47 contained summary as on 18.01.2006. The stock was 4495 cases. However, Pages 45 o 47 showed a stock of 5801 cases as on 20.11.2007 and as on 26.10.2008 -

5001,569 pieces. The assessee gave the reply as in respect of pages 78 to

82. During the course of search there was huge discrepancies alleged to have been detected during physical stock taken by the search parties in the factories at Kirti Nagar, Gurgaon, Ghaziabad etc. Stock of raw-material and work in progress which was more than that disclosed in the books of account which was confronted to the Director Shri Rajiv Gulati who had agreed to the discrepancies and had surrendered Rs.10 crores in A.Y. 2007-08 on account of such discrepancies. Another question was put to Shri Rajiv Gulati according to which (question No.22) while conducting search and survey operations at the business premises some papers/documents, records/computer etc. containing incriminating documents were found which were related to the business transactions. After examining the record it was found that none of business transactions were reflected in the books of 104 I.T.A.Nos.4576, 4577 & 4578/Del/2010 account. Shri Rajiv Gulati after going through the records accepted that there was some discrepancy and he offered a sum of Rs. one crores towards such discrepancies. Thus Shri Rajiv Gulati surrendered Rs.11 crores towards discrepancy in stock.

74. During the course of assessment proceedings the assessee was asked to explain as to why the amount of Rs.10 crores and Rs.one crores may not be added back to the income of the A.Y. 2007-08. The assessee was also asked to tally the stock lying at every work place including godown, factory, distributors, work-in-progress, cold storage, sale outlet etc. as on the date of search i.e. 22.11.2006. The assessee vide letter dated 28th October, 2009 stated that there was no discrepancy in the closing stock. There was no branch in Ghaziabad which was also mentioned along with factory at Gurgaon and Kirti Nagar factories. It was submitted that there was mental pressure exerted by the Income-tax authorities during the course of search to extract surrender. The assessee referred to question Nos. 21 to 23. The assessee retracted the surrender. Shri Rajiv Gulati was not informed as to how the valuation of inventories was prepared i.e. whether it was on MRP or at cost. Many cold storages were not surveyed or searched where the goods were kept. The assessee contended that there was no discrepancy in the 105 I.T.A.Nos.4576, 4577 & 4578/Del/2010 stock. The AO referred to provisions of sec. 292C of the Act. He observed that there was presumption that the material found in the search belonged to the assessee and contents of the same are true and onus was on the assessee to prove otherwise. As regards mentioning of Ghaziabad factory along with Gurgaon and Kirti Nagar Factory, the AO noted that it was a mistake in typing. Such mistake could not vitiate the proceedings and also had no impact on admission of the assessee regarding the surrendering of stock valuing Rs.11 crores due to discrepancies found. The AO therefore, added the amount of Rs.11 crores - Rs.10 crores towards stock and Rs.1 crore towards discrepancies.

75. The DRP rejected the objection raised by the assessee on the ground that the objections raised by the assessee were of general nature and were not substantiated before them.

76. Before us the learned AR of the assessee submitted that the DRP rejected the objections of the assessee by simply mentioning that the objection was general and was not substantiated by the assessee which is incorrect assertion. The assessee has raised objection to this finding of the DRP vide letter dated 22nd September, 2010, a copy of which is placed at 106 I.T.A.Nos.4576, 4577 & 4578/Del/2010 Pages 1060-1062 of the Paper Book indicating the evidences placed on the record of DRP by the assessee to substantiate its contention. Thus, the DRP rejected the objections of the assessee without considering the submissions of the assessee. As regards Page 3 of Annexure A-6/O-1 it was submitted that the figure related to expected demand and supply position of various Masalas noted down by the production personnel to plan the product-wise production. The AO brushed aside the explanation offered by the assessee as sham explanation. As regards Page 78 to 82 of Annexure A-6/O-1 the learned AR of the assessee submitted that the AO had noted that there was nothing on record to suggest that verification had taken place since the order-sheet did not record so. The learned AR of the assessee submitted that the assessee could not be blamed for the default or slackness on the part of the AO to mention in the order-sheet that the said papers were verified from the record. Page 87 of Annexure A-8/O-1 was seized from the factory premises of MDH Ltd. At Kirti Nagar. The assessee gave the explanation vide letter dated 26/12/2008. Page 39 to 47 of annexure A-4/O-2 were seized from the factory premises of MDH Gurgaon.. It was raw material receipt register maintained at the factory entrance gate and which was got matched with the purchases before the then AO. Thus there was no discrepancy in the closing stock as on the date of search. No details of the 107 I.T.A.Nos.4576, 4577 & 4578/Del/2010 difference in stock found during the course of search have been mentioned. It was submitted that it was not understood as to how the evidence of discrepancy in the stock was brought to the residence of Shri Rajiv Gulati where he surrendered the amount of Rs.11 crores on account of discrepancy in stock. Further the surrender was retracted by the Director. Mr. Rajiv Gulati was not informed as to how the valuation of inventory was prepared, whether at cost or MRP. Many cold storages were not surveyed or searched where the goods were kept. Then how the discrepancy in stock was computed was not understood. The statement of Shri Rajiv Gulati was recorded during the course of search proceedings on 28.11.2006 wherein reply to question No.20, he stated that he was misled with the pressure and presumption that there was discrepancy in the stock. A general question was put with no actual figures suggesting that the disclosure be made to close the issue though no discrepancy in any premises was pointed out in the figures. It has been stated that even though surrender of Rs.10 crores was made, the AO was duty bound to work out the exact quantity of stock as on the date of search and to compare the same with the stock recorded in the books. He submitted that ITAT in its decision for A.Y. 2001-02 to 2004-05 has held in Para 31 of Page 25 that surrender made by the Directors during the course of search was retracted immediately thereafter. If the Revenue wanted to rely 108 I.T.A.Nos.4576, 4577 & 4578/Del/2010 on the surrender made by the Directors, necessary evidence should have been brought on record to justify the surrender made by the assessee. In view of above, it has been pleaded that no addition can be made on account of surrender made by the director. The assessee placed reliance on Instruction F.No.286/2/2003-IT (Inv.II) of CBDT issued on 10th March, 2003. On the other hand Ld. CIT(DR) submitted that the assessee during the course of search had admitted undisclosed income in the group to the extent of Rs.51 Crores. However, the assessee and its Directors have retracted the surrender made during the course of search u/s 132(4). It was submitted that once surrender has been made, retraction is not permitted in view of the judicial pronouncements. He placed reliance on the decision of Kerala High Court in the case of CIT Vs. O Abdul Razak (2012) 20 taxmann.com 48 (Ker.) for the proposition that voluntary surrender made could not be retracted. The retraction made by the assessee was a self serving and afterthought and no reliance could be placed on the same to disbelieve clear admissions made in statement recorded under sec. 132(4) of the Act. He also placed reliance on the decision of Allahabad High Court in the case of Dr. S.C. Gupta vs. CIT, 248 ITR 782 for the proposition that an admission is extremely important piece of evidence though not conclusive and therefore, the statement made voluntarily by the assessee could form 109 I.T.A.Nos.4576, 4577 & 4578/Del/2010 basis of statement. He also placed reliance on the decision in the case of CIT vs. Karan Khandelwal 2012-TIOL-319-HC-DEL-IT for the proposition that onus placed by the Revenue need not necessarily be discharged by producing direct evidence of the assessee having received more than the consideration disclosed in the sale documents. The Hon'ble Delhi High Court has held that the contention of the Revenue that the Assessing Officer may not always be in a position to produce direct evidence to this effect. The onus placed on Revenue can be discharged by establishing facts and circumstances, from which it could be reasonably inferred that the ostensible consideration was not the real consideration and that the assessee had, in fact, received an amount higher than the amount disclosed by him in the sale documents, and consequently there was understatement or concealment of the consideration. The learned CIT-DR on the retraction of admitted income also placed reliance on the following decisions:-

(i) ACIT Vs. Espresso Investments, 8 SOT 287 (Mum.).

(ii) Manmohan Singh Vig vs. DCIT, 6 SOT 18 (Mum.).

77. We have heard both the parties. During the course of search Shri Rajiv Gulati surrendered the amount of Rs.10 crores towards difference in stock and Rs.1 crore on account of certain discrepancies. Thus the total 110 I.T.A.Nos.4576, 4577 & 4578/Del/2010 amount surrendered was Rs.11 crores. During the course of search inventory of stock lying in different premises i.e. factory at Kirti Nagar, Gurgaon Cold Storage, Godown etc was made. As per stock inventory so made the had total stock Rs 13,04,15,172/-. The authorized officers obtained the surrender by stating that there was difference in stock. The contention of the assessee is that during the course of search Shri Rajiv Gulati, director of the company was misled with the pressure due to search operation and presumption that there was a discrepancy in the stock. The general question was put with no factual figures suggesting that disclosure be made to close the issue without pointing out discrepancies in the stock found in various premises. Shri Rajiv Gulati had retracted the surrender on 28.11.2006.

78. As a normal practice the stock inventory is done at the time of search and survey and the difference if any is worked out on the basis of such inventory. In the case of assessee no discrepancy on the basis of such inventory of stock of the assessee at various premises was made. The assessee has relied on CBDT Instruction No. F.No.286/2/2003-IT (Inv.II) dated 10-3-2003 which reads as under:-

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I.T.A.Nos.4576, 4577 & 4578/Del/2010 "Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing the returns of income. In these circumstances, such confessions during the course of search & seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income-tax Department. Similarly, where recording statement during the course of search & seizure and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely.

Further, in respect of pending assessment proceedings also Assessing Officer should rely upon the evidences/materials gathered during the course of search and survey operations or thereafter while framing the relevant assessment orders." From the perusal of Instruction No.286 it is clear that in the absence of any discrepancy in inventory, no addition can be made. As the figures of discrepancy are not available with the Department and the Director of the assessee company has retracted from the surrender made by him on account of stock difference, no addition can be made on the basis of statement recorded u/s 132(4) of the Act. If the AO wanted to add the amount of Rs.11 crores on account of stock inventory, he should have brought material on record. In the absence of such material, in our considered opinion, no addition can be made. We, therefore, delete the addition. 112

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79. Next issue for consideration relates to addition of Rs.73,000/- on the basis of statement of Assistant Accountant of M/s. Satvik Traders. Survey under sec.133A was conducted at the premises of M/s. Satvik Traders, 6680 Khari Baoli, Delhi. Statement of Shri P.C. Sati, Assistant Accountant on oath had accepted that advances were received from the customers and the same were not entered in the books. At Page 9 of the Statement he accepted that Rs.73,000/- was accepted as advance on 21.11.2006. Further he admitted that this amount of Rs.73,000/- was unaccounted for. The AO asked the assessee to explain as to why the amount of Rs.73,000/- should not be added as income of the assessee. It was submitted by the assessee that M/s. Satvik Traders was not concern of the assessee. It was no concern of the assessee whether M/s. Satvik Traders had accepted the sum as advance without recording the same in their books or not. The statement of Shri P.C. Sati was recorded because he was looking after the accounts of Satvik Traders and he happened to be there during the survey. The AO however, treated the reply of the assessee as not correct. He made the addition of Rs.73,000/-.

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80. The assessee objected to the DRP. However, the DRP rejected the objection raised by the assessee on the ground that it was of general nature and no evidence was brought on record in support of the contention of the assessee that the addition was not to be made in the hands of the assessee.

81. Before us the learned AR of the assessee submitted that the Assistant Accountant of M/s. Satvik Traders was not authorized to give statement on behalf of the assessee. Further no cross-examiantion of the said person was allowed to the assessee. Statement of third party has been relied upon without cross examination, that too as regards M/s. Satvik Traders, a separate assessee. The premises where survey took place do not belong to the assessee. Therefore, no addition can be made in the hands of the assessee.

82. We have heard both the parties and gone through the material available on record. The accountant of M/s. Satvik Traders had stated that he was accepting certain amount without recording it in the books of accounts. If that is the case, addition should be made in the hands of M/s. Satvik Traders and not in the hands of the assessee. No material has been brought on record to suggest that the amount of Rs.73,000/- was paid by the 114 I.T.A.Nos.4576, 4577 & 4578/Del/2010 assessee to M/s. Satvik Traders without recording the same in the books of account. It is a settled law that third party evidence cannot be base of addition unless cross examination is allowed. The assessee cannot be condemned with hearing. In the absence of any such evidence/cross examination, in our considered opinion no addition can be made. Accordingly, we delete the addition of Rs.73,000/-.

83. The last issue for consideration which is common in all the three years relates to addition on account of Arm's Length Price. The assessee filed Form No.3CEB showing total value of foreign transaction of Rs.4,05,75,626/- in assessment year 2005-06, Rs.4,05,75,626/- in A.Y. 2006-07 and Rs.8,89,40,732/- in A.Y. 2007-08. The AO referred the matter to the Transfer Pricing Officer for determination of Arm's Length Pricing on 22.12.2008 after obtaining the permission from the Commissioner of Income-tax, Central-I, New Delhi. The Transfer Pricing Officer determined vide order u/s 92C(3) dated 23rd October, 2009 directing the Assessing Officer that Arm's Length Pricing shown by the assessee for export to the Associated Enterprises, be increased by Rs.52,91,986/- in A.Y. 2005-06, Rs.1,12,52,632/- in A.Y. 2006-07 and Rs.5,14,66,456/- in A.Y. 2007-08. During the assessment proceedings the assessee on 30-10-2009 admitted that 115 I.T.A.Nos.4576, 4577 & 4578/Del/2010 copy of the said order had been received by the assessee. The AO further noted that Transfer Pricing Officer has observed that no documentation has been prescribed under sub-Rule 10D(1)(e) to10D (1)(m) could be filed. No Transfer Pricing Study/working in regard to the international transactions was undertaken and most of method claimed to have been applied and reported in Form No.3CED has been given. The AO based on the report of the TPO made addition in respective assessment years.

84. Before DRP the assessee filed objections to the additions. The DRP upheld the additions worked out by the TPO.

85. Before us the learned AR of the assessee submitted that the DRP has brushed aside all the objections raised by the assessee regarding the approval of the DIT, reference to Circular, method adopted by the TPO for computing ALP etc. and has rejected the objection of the assessee merely by stating that the assessee has made general submissions regarding the ALP determined by the TPO and has not pointed out anything on the basis of which order of the TPO could be faulted with. The DRP has referred only one of the subsidiaries i.e. Mark and Spices Ltd. and has not referred to the other subsidiary company in its order. Thus, the directive order is devoid of merit 116 I.T.A.Nos.4576, 4577 & 4578/Del/2010 and the assessment passed on the basis of such order should be cancelled. It was also brought to our notice that the assessee had raised an objection regarding non-disposal of all the objections before the DRP vide letter dated 22/09/2010.

86. The learned AR of the assessee further submitted that proper approval from the DIT (TP) has not been taken by the AO as can be seen from the letters placed on record at pages 737-742 of the Paper Book. On perusal of the same, it would be seen that the draft order passed under sec. 92CA(3) was for approval vide letter dated 23/10/2009 whereas the approval was granted by the DIT (TP)-I referring to letter dated 22.10.2009. The onus is on the Revenue to prove that the same was typographical error which could be just for one year and not for all the three years. The learned AR of the assessee further submitted that such a mistake shows that no application of mind by the DIT (TP) was there and only in a mechanical manner the approval letters were issued for all the three years. This fact was learnt by the assessee only on inspection undertaken on its behalf on 09-03-2010. He further submitted that it is a legal objection which goes to the root of the subject and thus can be raised at any time in assessment proceedings. 117

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87. It has further been submitted that the Transfer Pricing proceedings initiated and undertaken are bad in law and on facts for the specific reasons mentioned below also communicated to the TPO vide letter dated 12/01/2009 besides other reasons submitted later on and must be taken on record under sec. 292BB of the Act:-

(i) The same was referred in respect of some name, which was a non-

existent assessee.

(ii) The same did not refer to each transaction for which arm's length price was to be determined.

(iii) The same was referred only for the sake of seeking extension of the limitation to complete the assessment by 31/12/2008.

(iv) The reference was also not enterprises specific.

(v) The international transactions were less than Rs.5 crores of which no reference was desired as per the instruction No. 3 dated 20/05/2003 of the CBDT placed at Pages No.722-724 of the Paper Book as followed in the decision of Sony India (P) Ltd. Vs. CBDT (2007) 288 ITR 52 (Del.).

88. Further the assessee is dealing in a number of products having different varieties, rates, packing, proportion of spices blended therein, cost 118 I.T.A.Nos.4576, 4577 & 4578/Del/2010 etc. A number of items having different value and packing are billed together in an export invoice. However, the TP Officer made the addition by computing the average rate of carton (by dividing the total value of invoice with total number of cartons) ignoring that the said cartons does not have same/comparable items (Pages 933-955 of the Paper Book). The said average was then compared with the average computed for the bills raised on uncontrolled party during the same period and then the difference therein was multiplied with the number of cartons to arrive at the amount of addition. Thus the TP Officer has compared two incomparable figures to arrive at Arms Length Price which is not permissible at all. The TPO was duty bound to consider the rates of each product as given in the bills, copies of which were placed on his record and were also examined by him as is mentioned in his order. The Transfer Pricing Order computing the arm's length price at a higher figure than the actual figures is bad in law and on facts as the same does not consider the fact that the entire arm's length sales was made to wholly owned subsidiaries of the assessee which were working as an extension of the assessee for further sales of the produce and not as competitor of the overseas buyers.

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89. It is on record that the said subsidiaries were not selling produce of any other company though the other buyers were selling other products also. They were trying to establish new markets for the assessee. All the expenses of those subsidiaries were to be met by themselves out of margin to be retained by them from the sales because as per the directions of the Reserve Bank of India permitting those subsidiary companies, all expenses of those companies were to be met by them. (RBI Permission on page 798-801 of PB). The said permission letter was placed on record of the Transfer Pricing Officer vide letter dated 14/10/09, copy placed on page 796-797 in PB). Photocopies of the annual accounts of the subsidiary company were placed on record at pages no.802 to 827 of PB enclosed with the letter dated 14/10/09. On perusal of the annual accounts it would be seen that the expenses incurred by the said AE were in the range of 17 to 20% of the sales there and the profits were in the range of 4.5 to 6% of the sales there and which was its margin on investment. Incurrence of all these expenses was the sole responsibility of the assessee as it was the assessee who was establishing its own marketing setup there. Thus more discounts was given to the associated enterprise who were catering to the small retail outlets overseas as compared to the non AEs who were the large store chains overseas and could afford to buy one container load goods at a time. But the 120 I.T.A.Nos.4576, 4577 & 4578/Del/2010 small retailers were also to be given the same margin as the big store chains as the consumer purchases the produce at the same rate from any nearest store and MRP is printed on each packet. If those subsidiaries had not been opened but branches were opened, then the expenses incurred there would have been met by the assessee only. The Transfer Pricing Officer/Assessing Officer has erred in law and on facts in ignoring that pricing of exports to each country varies due several factors, e.g., packing size and quality, fumigation, shelf life, local food control regulations, etc. It is well know that the rate of supplies for large quantities is always lower than the rates at which supplies of small quantities are made. The AEs were supplied a very large quantity as compared to the other buyers. However, no consideration has been given for the quantity supplied to AEs and non AEs while computing the arms length price.

90. The Transfer Pricing Officer/Assessing Officer has erred in law and on facts in rejecting the TNM Method of computing the exports price and substituting the same with CUP though in the case of assessee TNMM is the most suitable method considering the factors and circumstances of the wholly owned subsidiaries overseas who are not undertaking any business other than for the goods supplied by the assessee and are working to 121 I.T.A.Nos.4576, 4577 & 4578/Del/2010 establish new market overseas for the products of the assessee and all such expenses were the sole responsibility of the assessee. In nutshell the entire exercise to compute the impugned arm's length price and the alleged difference by the TPO is incorrect and must be struck down.

91. On the other hand ld. CIT (DR) submitted that the assessee had not given comparables on the plea that product mix was entirely different and there were no comparables in public domain. He further submitted that for TNMM each transaction is bench marked and profitability is to be determined. In TP proceedings the statutory burden is on assessee to prove that goods have been sold to AE at Arms Length Price. For this proposition reliance is placed on the decision of Delhi tribunal in the case of Perot Systems TSI (India) Ltd 5 ITR (Trib)106 (Delhi). There is no legal requirement that the assessing officer should prima facie demonstrate that there is tax avoidance before invoking relevant provisionS. He placed reliance on the decision of special bench of ITAT in the case of Aztec software & technology Services Ltd 107 ITD 141 (Bang)(SB). Ld CIT (DR) further submitted that RBI is not TP Authority and hence the restrictions imposed on assessee for investment is not relevant. The purpose for which permission was granted by RBI Is only concerned with foreign exchange 122 I.T.A.Nos.4576, 4577 & 4578/Del/2010 regulations and not for ALP. He placed reliance on the decision of Hon'ble Delhi High Court in the case of CIT v Nestle India Ltd. 337 ITR 129. Choice of determination of ALP is not unfettered choice on the part of the taxpayer and this choice is to be exercised on the touch stone of principles governing selection of most appropriate method set out in section 92C (1). Where the assessing officer finds that that selection of most appropriate is not correct, he has the powers as well as corresponding duty to select the most appropriate method and compute ALP by apply that method. In the absence of any comparables forthcoming from the assessee on the form of an appropriate TP report, AO has rightly adjusted the ALP and made the additions. He therefore supported the order of assessing officer.

92. We have heard both the parties and gone through the material on record. In this case the assessee has not given TP study report on the ground that there was no public domain comparable in the line of the business of the assessee. The TPO has determined ALP and made the addition by computing the average rate of cartons (by dividing the total value of invoice with total number of cartons) ignoring that the said cartons do not have same/comparable items. In our considered view the ALP cannot be determined without proper comparables. We are unable to agree with the 123 I.T.A.Nos.4576, 4577 & 4578/Del/2010 contention that no comparables are available in public domain. To our understanding nearly similar types of spices, condiments and their mixtures are sold by other brands like, Everest Masala, Ramdeo Masala, Ashok Masala and other manufacturers. We are in 2012 and by now public domain comparables should be abundantly available. Any issue about the year can be adjusted by the TPO to make the ALP working reasonable to the possible extent. In our view fresh TP study for determination of a fair ALP should be the proper solution under these circumstances. Consequently we set aside the TP adjustments to the file of AO to undertake the same a fresh in accordance with law and in the light of these observations.

93. In the result these appeal are accordingly, partly allowed for statically purposes.

94. This decision is pronounced in the Open Court on 17.8. 2012.

          Sd/-                                          Sd/-
     (R.P. TOLANI)                                (K.D. RANJAN)
   JUDICIAL MEMBER                            ACOUNTANT MEMBER

Dated: 17.8. 2012.
                                    124
                                                    I.T.A.Nos.4576, 4577 & 4578/Del/2010


Copy of the order forwarded to:-

   1.   Appellant
   2.   Respondent
   3.   CIT
   4.   CIT(A)
   5.   DR
                                         By Order


*mg                                 Deputy Registrar, ITAT.

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Income Tax Appellate Tribunal - Delhi

Mahashian Di Hatti Ltd., New Delhi vs Assessee on 20 May, 2003