2016-VIL-980-ITAT-IND

Income Tax Appellate Tribunal INDORE

IT(SS)A Nos.111 to 114 & 401/Ind/2015, IT(SS)A Nos. 207, 208 & 506/Ind/2015

Date: 10.02.2016

MUKESH SANGLA INDORE

Vs

DY. COMMR. OF INCOME TAX (CENTRAL) , INDORE AND VICE-VERSA.

For the Assessee : Shri Girdhar Garg
For the Revenue : Shri Rajeev Varshney and Shri R.A. Verma

BENCH

Shri D.T. Garasia, Hon’ble Judicial Member and Shri B.C. Meena, Hon’ble Accountant Member

JUDGMENT

PER SHRI B.C. MEENA, AM

 These appeals filed by the assessee emanate from the orders of the learned CIT(A)-3, Bhopal, dated 29.4.2015. The facts, in brief, of the assessee’s case are that the assessee is an individual, head of Sangla family, the promoter of Signet Industries Ltd. and member/director of various companies belonging to Signet Group. His sources of income consists of income from Salaries, house property, share in profit/loss from partnership firm, capital gains, dividend, interest etc. A search and seizure operation u/s.132 was carried out at the business premises of various companies belonging to Signet Group as well as residential premises of the assessee on 03.11.2011. Consequently, a notice u/s.153A was issued. The status regarding return of income furnished by the assessee u/s.139(1) and 153A of the Income-tax Act, 1961 and assessments completed as per original assessment u/s.143(3) / 143(1) as well as u/s.153A are as under :

A.Y.	Date of Original return filed	Returned income u/s.139 (Rs.)	Date of filing return u/s.153A	Returned income u/s.153A (Rs.)	Assessed income u/s.153A/ 143(3) Rs.
*2006-07	21.07.2009	49,33,297	25.04.2013	49,95,358	49,95,358
*2007-08	21.07.2009	2,02,05,908	25.04.2013	2,02,12,600	2,08,89,235
*2008-09	21.07.2009	1,78,30,901	25.03.2013	1,77,70,290	2,89,20,310
2009-10	21.07.2009	6,80,000	25.03.2013	44,83,580	44,83,580
2010-11	28.03.2011	16,47,191	25.03.2013	12,38,31,050	34,47,11,770
2011-12	01.08.2011	22,28,937	25.03.2013	22,24,320	25,01,48,230
2012-13	19.04.2013	40,43,320	-	-	16,58,69,300

* Returns of Income for assessment years 2006-07, 2007-08 and 2008-09 were voluntarily revised after search by Central Excise Authorities

2. The assessee filed appeals before the learned C.I.T.(A) against the assessments completed u/s.153A who partly allowed the assessee’s appeals. Against the order passed by the learned CIT(A), the assessee as well as revenue have preferred appeals before the Income-tax Appellate Tribunal. We have heard both the sides on various issues raised in these appeals.

3. GROUND NO.1.0 & 1.1(A.YS. : 2008-09 TO 2012-13)OF THE ASSESSEE’S APPEAL:

Ground No.1.0 & 1.1 of assessee’s appeal reads as under :

ASSESSMENT YEARS : 2008-09 TO 2010-11

The order passed by the learned Commissioner of Incometax (Appeals)-3, Bhopal, partly confirming the assessment order passed u/s.153A r.w. sec. 143(3) of the Income-tax Act, 1961, is both bad-in-law and bad-in-facts. In doing so, he did not appreciate that no addition could have been made while completing assessment u/s.153A of the Income-tax Act, 1961 in case of completed assessments if no undisclosed income was determinable from the material found as a result of search.

ASSESSMENT YEARS : 2011-12& 2012-13

1.0 The order passed by the learned Commissioner of Income-tax (Appeals)-3, Bhopal, partly confirming the assessment order passed u/s.153A r.w. sec. 143(3) of the Income-tax Act, 1961, is both bad-in-law and bad-in-facts.

4. The C.I.T.(A) rejected the assessee’s contention. The learned CIT(A)’s contentions can be summarised as under that where a search u/s.132 of the Act is initiated after 31.05.2003 in case of a person, the Assessing Officer has no option but to assess or reassess the total income for each of preceding six assessment years. This is clear and unambiguous from the plain language of Sec.153A(1) of the Act and reiteration in the first Proviso to section 153A. The terms Total income and scope of Total Income are defined in Sec.2(45) and Sec.5 of the Incometax Act respectively. The 'total income' to be assessed or reassessed in terms of sec.153A shall include both regular and undisclosed income in respect of each assessment year falling within such six assessment years. Unlike Chapter XIV-B of the Act, where the definition of 'undisclosed income' was specifically provided in section 158B(b), no separate and distinct definition of 'total income' is provided in section 153A in contradistinction to its definition u/s.2(45) of the Act. Had the legislature intended to curtail the scope of total income in relation to search and seizure assessments, it would have specifically provided it under the relevant provisions. In the absence of the term ‘undisclosed income’ having been incorporated in the section itself, the same cannot be read into the section. While Sec.153A provides for determination of total income which includes both the disclosed as well as undisclosed income, chapter XIV-B provided for determination of undisclosed income for the whole block period. Unlike Chapter XIV-B, there is nothing in Sec.153A which requires completion of a search assessment only on the basis of evidence found as a result of search or other documents and such other materials or information as are available with the AO and relatable to the evidence found. The AO is statutorily required to make assessment u/s.153A for all such six years and compute total income of the assessee including undisclosed income notwithstanding that returns of these assessment years have already been processed u/s 143(1) or assessed u/s 143(3) of the Act. The scope of Sec.153A is similar to Sec.143(3) and in that context, the legislature used the word ‘Total Income’. The first and second Proviso to sec.153A are complementary to each other and requires the AO to assess or re-assess the 'total income' in respect of each assessment year falling within such six assessment years in assessment orders u/s.153A. In support of his contention, reliance was placed upon Memorandum explaining the provisions in the Finance Bill, 2003 [(2003) 260 ITR (St.) 191], the rule of construction laid down in Heydon’s Case for interpretation of the language used in sec.153A and the following judgements:

1.	C.I.T. vs. Raj Kumar Arora	367 ITR 517 (All)
2.	Canara Housing Development Company vs. D.C.I.T.	49 taxman.com 98 (Kar)
3.	Nandini Delux vs. C.I.T.	37 ITR (Trib.) 52 (Bang.)
4.	MadugulaVenu vs. D.I.T.	29 taxmann.com 200 (Del)
5.	Shivnath Rai Harnarain (India) Ltd. vs. D.C.I.T.	117 ITD 74 (Del)
6.	Ms. Shyam Lata Kaushik vs. A.C.I.T.	306 ITR (A.T.)117 (Del)
7.	Harvey Heart Hospitals Ltd. vs. A.C.I.T.	130 TTJ 700 (Chennai)
8.	Dr. Mansukh Kanjibhai Shah vs. A.C.I.T.	129 ITD 3 76 (Ahd.)
9.	Rajat Tradecom India (P.) Ltd. vs. D.C.I.T.	120 ITD 48 (Indore)
10.	Income-tax-VII v. Chetan Das Lachman Das	25 taxmann.com 227 (Del)
11.	C.I.T. vs. Anil Kumar Bhatia	24 axmann.com 98 (Del)

5. Before the learned counsel for the assessee submitted that the assessment u/s.153A is made only in cases where a search is initiated u/s.132 or books of account, other documents or any assets are requisitioned u/s.132A after 31.05.2003. Therefore, Section 153A of the Act cannot be read in isolation. The requirement of assessment or reassessment of total income under the said section has to be read in the context of Sections 132 or 132A of the Act. Once notice u/s.153A is issued, the assessee is compulsorily required to file return of income for six assessment years notwithstanding discovery or otherwise of any incriminating material. All the assessment proceedings which are pending on the date of search abate in terms of second proviso to sec.153A. As a corollary, although but not expressly provided in section, the assessment proceedings which are not pending do not abate. If nothing incriminating is found on account of such search or requisition in relation to unabated assessments i.e. completed or concluded assessments, only assessed income should be reiterated. The harmonious construction of entire provision would lead to an irresistible conclusion that the term ‘assessment’ has to be read in the context of abated assessments and the term ‘reassessment’ has been used in the context of unabated assessments. In the case of completed assessments, income has to be re-assessed in terms of Sec.153A. The reassessment requires belief of assessing officer regarding escapement of income from assessment. The belief should be founded on existence of appropriate material or information. It should be rational belief held in good faith and not arbitrary, subjective or a mere pretence. The material or information in his possession should have direct nexus with his belief regarding escapement of income. The absence of such nexus shall render the re-assessment proceedings invalid. Thus, the re-assessment of income u/s.153A cannot be made sans any incriminating material or merely on change of opinion in relation to material already considered. [Indian & Eastern Newspaper Society Vs. C.I.T. (119 ITR 996 SC); Calcutta Discount Co. Ltd. Vs. I.T.O (41 ITR 191 SC)]. The contention of the revenue to the effect that once a notice under Section 153A of the Act is issued, the assessments for all the six years are at large for the AO has no warrant in law.

6. The learned counsel for the assessee placed reliance upon the following judicial pronouncements :-

 1. Jai Steel (India) vs. A.C.I.T. (2013) 259 CTR 281 (Raj)

The relevant paras are reproduced hereunder :-

“19. The underline purpose of making assessment of total income under Section 153A of the Act is, therefore, to assess income which was not disclosed or would not have been disclosed. The purpose of second proviso is also very clear, inasmuch as, once a assessment or reassessment is 'pending' on the date of initiation of search or requisition and in terms of Section 153A a return is filed and the AO is required to assess the same, there cannot be two assessment orders determining the total income of the assessee for the said assessment year and, therefore, the proviso provides for abatement of such pending assessment and reassessment proceedings and it is only the assessment made under Section 153A of the Act would be the assessment for the said year.

20. The necessary corollary of the above second proviso is that the assessment or reassessment proceedings, which have already been 'completed' and assessment orders have been passed determining the assessee's total income and, such orders are subsisting at the time when the search or the requisition is made, there is no question of any abatement since no proceedings are pending. In such cases, where the assessments already stands completed, the AO can reopen the assessments or reassessments already made without following the provisions of Sections 147, 148 and 151 of the Act and determine the total income of the assessee.

21. The argument raised by the counsel for the appellant to the effect that once a notice under Section 153A of the Act is issued, the assessments for six years are at large both for the AO and assessee has no warrant in law.

22. In the firm opinion of this Court from a plain reading of the provision along with the purpose and purport of the said provision, which is intricately linked with search and requisition under Sections 132 and 132A of the Act, it is apparent that:

(a) the assessments or reassessments, which stand abated in terms of II proviso to Section 153A of the Act, the AO acts under his original jurisdiction, for which, assessments have to be made;

(b) regarding other cases, the addition to the income that has already been assessed, the assessment will be made on the basis of incriminating material and

(c) in absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made.

 Though such a claim by the assessee for the first time under Section 153A of the Act is not completed, the case in hand, has to be considered at best similar to a case where in spite of a search and/or requisition, nothing incriminating is found. In such a case though Section 153A of the Act would be triggered and assessment or reassessment to ascertain the total income of the person is required to be done, however, the same would in that case not result in any addition and the assessments passed earlier may have to be reiterated.

 ............

26. The plea raised on behalf of the assessee that as the first proviso provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words 'assess' or 'reassess' have been used at more than one place in the Section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word 'assess' has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents.”

7. Reliance was also placed on the decision in the case of C.I.T. vs. Kabul Chawla [I.T.A.No.707/2014 dt.28.08.2015 (Del)(HC)].

The relevant para reads as under :-

“37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:

i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.

ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.

iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs “in which both the disclosed and the undisclosed income would be brought to tax”.

iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material.”

v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings.

vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.

vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.

38. The present appeals concern AYs, 2002-03, 2005-06 and 2006-07. On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed.

39. The question framed by the Court is answered in favour of the Assessee and against the Revenue.”

8. The learned counsel for the assessee also relied upon the following case laws :-

2. C.I.T. vs. Murli Agro Products Ltd. [(2014) 49 taxmann.com 172 (Bom)] [Kindly refer to Para 8 to 10]

3. C.I.T vs. Continental Warehousing Corporation [58 taxmann.com 78 (Bom)] [Kindly refer to Para 28 to 37]

4. All Cargo Global Logistics Ltd. vs. D.I.T. [137 ITD 287 (Mum-SB)] [Kindly refer to Para 48 to 53; 53 conclude the issue]

5. Govind Agarwal [ITA No.3389 & 3390/M/2011 dt.10.01.2014 (Mum.Trib.)]

6. A.C.I.T. vs. Pratibha Industries Ltd. [28 taxmann.com 246 (Mum. Trib)]

7. Gurinder Singh Bawa vs. D.C.I.T.[28 taxmann.com 328 (Mum. Trib)]

8. Dinesh Tobacco industries vs. D.C.I.T. [148 ITD 118 (Jodh. Trib)]

9. The learned counsel for the assessee also submitted that the judgments relied upon by the C.I.T. (A), the same were distinguishable on facts inasmuch as recovery of incriminating material either during search or post search inquiries.

10. On the issue of addition sans incriminating material, there are two views of various judicial authorities. It is a settled legal position that if two views are possible on a particular issue, the view which is favourable to the assessee should be followed. [C.I.T. vs. Vegetable Products Ltd. 88 ITR 192 (SC)]. In the assessee’s case, there are no incriminating material whatsoever in relation to investment in shares of Adroit Industries (India) Ltd. in assessment year 2007-08, transfer of these shares in assessment year 2008-09 and their reacquisition subsequently in assessment year 2010-11. No proceedings in relation to assessments for these assessment years were pending and therefore no addition could have been made in assessment completed u/s.153A in the absence of any incriminating material on account of unexplained cash credits in assessment year 200809 and unexplained investment in assessment year 2010-11. The addition made by the assessing officer by way of reassessment in relation to impugned concluded assessments amounted to change in opinion on the same set of facts which is not permissible u/s.153A.

11. The learned counsel for the assessee pleaded to allow these grounds while the learned DR pleaded that incriminating documents and unrecorded sales, unaccounted wealth was discovered by search, hence, the assessments u/s 153A of the Act are valid and facts of the assessee’s case at variance to the facts of the cases relied upon.

12. We have heard both the sides. We hold that the incriminating documents pertaining to the various assessment years even for years where the assessments are not abated, were found and seized. The assessee himself had admitted before the Assessing Officer that several loose papers seized as Annexure LPS 1 to LPS 5 and BS-1 to BS-5 are having entries relating to personal unaccounted business of the assessee. The assessee himself had prepared a cash flow statement of these unaccounted cash transactions incorporating debit and credit cash transactions. The unrecorded sales and unaccounted assets were also discovered in the search operation. The assessee has also admitted undisclosed income on the basis of these documents and assets. Therefore, the ratio laid down in case laws relied on by the learned counsel for the assessee is not applicable to the facts of the assessee’s case. Considering all these factual aspects, we dismiss all these grounds for all the assessment years raised before us.

13. GROUND NO.2.0 & 2.1 (A.YS. : 2008-09 & 2010-11)OF THE ASSESSEE’S APPEAL AND GROUN NO.2 (A.YS. : 2010-11)OF REVENUE’S APPEAL :

Ground No.2.0 & 2.1(A.Ys. : 2008-09 & 2010-11) of assessee’s appeals reads as under:

ASSESSMENT YEAR :2008-09

SALE PROCEEDS OF 2,17,750 SHARES OF ADROIT INDUSTRIES (INDIA) LTD. TREATED AS UNEXPLAINED INCOME : Rs. 86,16,935/-

2.0 The learned Commissioner of Income-tax (Appeals) erred in law as well as in facts in confirming the addition of Rs. 86,16,935/- made in respect of sale proceeds of 2,17,750 shares of Adroit Industries (India) Ltd. by the assessing officer, as unexplained income of the assessee.

2.1 While confirming the addition, the learned Commissioner of Income-tax (Appeals) erred in law as well as in facts by restricting deduction in respect of short term capital gain to the extent of Rs. 2,75,975/- as against short term capital gains of Rs. 3,05,975/- offered by the assessee in his Return of Income.

ASSESSMENT YEAR :2010-11

ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT IN THE SHARES OF ADROIT INDUSTRIES (INDIA) LTD. : Rs. 1,22,79,700/-

2.0 The learned Commissioner of Income Tax (Appeals) erred in law as well as in facts in partly confirming the addition of Rs. 1,22,79,700/- made by the assessing officer on account of unexplained investment in 4,32,075 shares of Adroit Industries (India) Ltd.

 3.0 Ground No.2 (A.Ys. : 2010-11) of revenue’s appeals reads as under:

ASSESSMENT YEAR : 2010-11

1. On the facts and in the circumstances of the case the C.I.T.(A). erred in restricting the addition made on account of unexplained investment in the share of Adroit Industries (India) Ltd. to Rs. 1,22,79,700/- as against the addition of Rs. 1,86,18,828/- made by the A.O..

14. On the issue of sale proceeds of shares of Androit Industries, short term capital gain thereupon and also on reacquisition of shares of Androit Industries Pvt. Ltd. addition made for unexplained investment. We have already decided this issue in the case of Mukesh Sangla HUF and others vide our order dated 5th November, 2015. The relevant paras of that order are 45 to 60 which are reproduced hereunder :-

“45. The facts in relation to investment and reacquisition of shares of Adroit Industries (India) Ltd. are that the Signet group, Sangla family and its associates concerns acquired management control of Adroit Industries (India) Ltd., Indore, a 100% export oriented auto ancillary unit, from Anand family of Indore in March 2007. There is no dispute regarding the price at which shares were acquired from Anand Family as well as from employees and other associates and the revenue did not dispute the investment by Signet group, Sangla family and its associates concerns. The details of shares purchased are as follows:

Name of the Parties	Number of Shares	Price Per Shares (Rs.)	Total Amount (Rs.)
Anand Family	56,06,750	40.25	22,56,71,688
Employees, etc.	14,750	30.00	4,42,500
	56,21,500		22,61,14,188
Shares not acquired in March 2007	3,500
Total	56,25,000

In May 2007, various entities of Signet group and members of Sangla family sold 22,88,025 shares to Shalimar Ferrous Metals Pvt. Ltd., Indore, (‘Shalimar’) at various rates ranging from Rs. 40.35 to Rs. 44.80 per shares. The resultant short term capital gain was duly shown in their Return of Income filed before the Income-tax Department. At the end of March 2009, the Signet group was holding only 26.51% of the total paid up share capital of Adroit Industries (India) Ltd. (14,91,400 shares) and rest of the shares were held by nonSignet group entities (41,33,600 shares). In August and September 2009, the shares of Adroit Industries (India) Ltd. held by non-Signet group were acquired by members of Sangla family and other associate concerns at around Rs. 11.25 to Rs. 12.25 per share. By March 2010, the entire share capital of Adroit Industries (India) Ltd. i.e. 56,25,000 shares of Adroit Industries (India) Ltd. were again held by various entities of members of Sangla family and associate concerns. The total funds provided directly or indirectly from Signet Industries Ltd. amounted to Rs. 16.47 Crores apart from its own investments of Rs. 6.00 crores in shares of Adroit Industries (India) Ltd. Adroit Industries (India) Ltd. incurred expenses towards public issue in the Financial Year 2010-11 & 2011-12 details of which are as under :-

Financial Year	Public Issue Expenses (Rs.)
2010-11	69,08,696
2011-12	14,72,210
	83,80,906

 46. There were no evidences found either during search or post search enquiries or during assessment proceedings which could show that any payment of any consideration over and above the recorded consideration in books of Sangla family and their associate concerns were paid or received as unaccounted cash or otherwise.

47. The Assessing Officer held that no promoter will divest 73.5% of its holding to third parties and that too at a very nominal profit, particularly when the promoter intended to go public and anticipated significant value addition to its investment. Adroit Industries (India) Ltd. has been consistently performing well. Evident from the following table showing year wise turnover, profitability and earnings per share:

Financial Years	Turnover	Profit before Tax	Profit after Tax	Earning per share
31.03.2007	20,53,03,097	3,24,43,605	2,51,24,433	4.00
31.03.2008	22,11,45,868	2,79,53,727	1,68,66,562	3.00
31.03.2009	24,61,35,713	2,22,92,834	1,45,21,059	2.58
31.03.2010	16,98,84,237	3,13,32,877	2,06,68,119	3.67
31.03.2011	26,16,49,372	6,08,43,868	4,09,00,040	3.89
31.03.2012	23,45,32,888	4,56,79,338	3,20,21,038	3.05
31.03.2013	36,78,86,610	7,13,90,758	4,91,83,297	4.68

The assessee has not given a single name either of any broker or any investor through whom he contacted the ultimate investor. Any prudent business group will acquire another company only after having firm financial tie ups. The divestment to the tune of 73.5% immediately after acquiring a company is against all human probabilities. The contention of the assessee that due to bad capital market situation, the group could not go public and was compelled to acquire shares of Adroit Industries (India) Ltd. at Rs. 11 to Rs. 12.5 per share is also not justified because no investor would ever invest in the shares of the unlisted company without having proper exit route and without ensuring proper returns on his investment particularly when these shares have changed many hands before coming back to Sangla Group which is usually not possible in case of unlisted shares. The assessee did not bring anything on record that there was high interest bearing debt to be discharged or was facing any financial liquidity problem. Further, nothing was brought on record to show that the sale proceeds were utilized for discharging any interest bearing liability. If the acquisition of Adroit Industries (India) Ltd. was so risky, why the investment in Adroit Industries (India) Ltd. was made in the first place? It is not possible to accept the assertion of the assessee that the divestment of part of the investment was to reduce the assessee group’s risk. Merely because the entire transaction was through banking channels would not make a sham transaction genuine. The A.O. held that these investor companies were paper companies having meager profits and were not regularly filing their return of income. The group did not make any attempt to go public in F.Y.2007-08 and 2008-09. It was only after the shares of Adroit Industries (India) Ltd. were acquired in September 2009, that the group tried for its public issue in F.Y.2011-12.

48. Therefore the contention of the assessee that the shares were reacquired for a price ranging from Rs. 11.25 to Rs. 12.25 per share due to its inability to bring out public issue. The divestment of shares of Adroit Industries (India) Ltd. was a sham transaction as these companies did not exist in real sense. In their statement recorded during the assessment proceedings, Shri ParasramPatidar and Shri Vimal Bandi (both of them are employees of Signet group) categorically admitted that they had neither any idea about the actual affairs of the company nor any information about transfer of shares of Adroit Industries (India) Ltd. Shalimar Ferrous Metal Pvt. Ltd. was used as a conduit to introduce unaccounted and unexplained income through bogus paper company like Lucky Commotrade Pvt. Ltd. of which the ultimate beneficiary is the assessee. Since the assessee has finally received the amount in the guise of sale proceeds of shares of Adroit Industries (India) Ltd., the same is brought to tax as unexplained cash credit in Assessment Year 200809. The repurchase of shares by the Signet group, Sangla family and its associate concerns in the Assessment Year 2010-11 from various paper companies was nothing but a colourable device and an arranged and managed affair. Therefore the difference between the fair market value per share i.e. Rs. 40.25 and cost of reacquisition is treated as unexplained investment of the assessee. Accordingly, the following additions are made:

Assessment Year	Amount (Rs.)	Remarks
2008-09	14,72,800	Unexplained Cash Credit
2010-11	1,02,65,813	Unexplained Investments

49. The C.I.T.(A) confirmed the action of the A.O. and rejected the assessee’s contention. Agreeing to the findings of the assessing officer, C.I.T.(A) also observed that the Sangla group had introduced certain more layers of entities in whose name the shares were transferred (in some cases six transfers) and finally repurchased the shares at a price of Rs. 11.25 to Rs. 12.25 per share. The flow of shares of Adroit Industries (India) Ltd. involving number of transfers is as under :

CHART-I

[Flow of transfer of 22,88,075 shares originally held by Anand Family]

Name of shareholder of Anand Family	No. of shares held	1st Transfer					2nd Transfer
		Date	Name	No. of shares	Rate	Amount	Date	Name	No. of shares	Rate	Amount
Jagjit Singh Anand	3,10,550	13.03.07	Ornate Leasing & Finance Pvt. Ltd.	3,10,550	40.25	1,25,00,000	10.05.07	Shalimar Ferrous Metals Pvt. Ltd.	3,10,550	42.60	1,32,29,430
Gajendra Kaur Anand
Jagjit Singh Anand	3,10,550	13.03.07	Signate Leasing & Finance Pvt. Ltd.	3,10,550	40.25	1,25,00,000	10.05.07	Shalimar Ferrous Metals Pvt. Ltd.	3,10,550	40.35	1,25,30,693
Gajendra Kaur Anand
Jagjit Singh Anand	2,00,000	13.03.07	Swan Holding Pvt. Ltd.	2,00,000	40.20	80,40,625	10.05.07	Shalimar Ferrous Metals Pvt. Ltd.	2,00,000	40.40	80,80,000
Gajendra Kaur Anand
Jagjit Singh Anand	3,10,550	13.03.07	Signet Impex Pvt. Ltd.	3,10,550	40.25	1,25,00,000	10.05.07	Shalimar Ferrous Metals Pvt. Ltd.	3,10,550	40.35	1,25,30,693
Gajendra Kaur Anand
Jagjit Singh Anand	3,10,550	13.03.07	Swan Petrochemicals Pvt. Ltd.	3,10,550	40.25	1,25,00,000	10.05.07	Shalimar Ferrous Metals Pvt. Ltd.	3,10,550	40.65	1,26,23,858
Gajendra Kaur Anand
Virendra Singh Anand	2,84,650	13.03.07	Saurabh Sangla	2,84,650	40.25	1,14,57,163	10.05.07	Shalimar Ferrous Metals Pvt. Ltd.	2,84,650	44.20	1,25,81,530
Narinder Kaur Anand
Jagjit Singh Anand	3,10,550	13.03.07	Pranay trade link Pvt Ltd	3,10,550	40.25	1,24,99,638	10.05.07	Shalimar Ferrous Metals Pvt. Ltd.	3,10,550	40.40	1,25,46,220
Ishdeep Singh Anand	3,750	13.03.07	M/s Mukesh Sangla HUF	3,750	40.25	1,50,938	10.05.07	Shalimar Ferrous Metals Pvt. Ltd.	32,875	44.80	14,72,800
Rupinder Singh Anand
GamanBhasin	2,500	13.03.07	M/s Mukesh Sangla HUF		2,500	40.25	1,00,625
Rajendrapal Singh Bhasin
Taranjot Kaur Chandok	17,875	13.03.07	M/s Mukesh Sangla HUF		17,875	40.25	7,19,469
Ranjeet Singh Chandok
Rupinder Singh Anand	2,500	13.03.07	M/s Mukesh Sangla HUF		2,500	40.25	1,00,625
Parminder Kaur Anand
Parminder Kaur Anand	2,500	13.03.07	M/s Mukesh Sangla HUF		2,500	40.25	1,00,625
Rupinder Singh Anand
Jashdeep Singh Anand	3,750	13.03.07	M/s Mukesh Sangla HUF		3,750	40.25	1,50,938
Rupinder Singh Anand

 

Name of shareholder of Anand Family	No. of shares held		1st Transfer				2nd Transfer
		Date	Name	No. of shares	Rate	Amount	Date	Name	No. of shares	Rate	Amount
Kamal C. Sanghavi	1,250	13.03.07	Mukesh Sangla	1,250	30.00	37,500	10.05.07	Shalimar Ferrous Metals Pvt. Ltd.	217,750	40.85	8,895,088
Virendra Singh Anand	103,800	13.03.07	Mukesh Sangla	103,800	40.24	4,176,912
Narinder Kaur Anand
Jagjit Singh Anand	99,200	13.03.07	Mukesh Sangla	99,200	40.32	4,000,000
Gajendra Kaur Anand
IshwerlalBhavsar	500	13.03.07	Mukesh Sangla	500	30.00	15,000
Ramesh Sen	500	13.03.07	Mukesh Sangla	500	30.00	15,000
Ramesh Pal	500	13.03.07	Mukesh Sangla	500	30.00	15,000
Neelkanth Bade	500	13.03.07	Mukesh Sangla	500	30.00	15,000
D.G.Kamble	500	13.03.07	Mukesh Sangla	500	30.00	15,000
Shyam Sharma	500	13.03.07	Mukesh Sangla	500	30.00	15,000
JyotiVallabhTripathi	500	13.03.07	Mukesh Sangla	500	30.00	15,000
Narayan Suryavanshi	500	13.03.07	Mukesh Sangla	500	30.00	15,000
Nand K. Vishwakarma	500	13.03.07	Mukesh Sangla	500	30.00	15,000
GajanandGangre	500	13.03.07	Mukesh Sangla	500	30.00	15,000
Tarachand Jain	500	13.03.07	Mukesh Sangla	500	30.00	15,000
Afsar Ansari	500	13.03.07	Mukesh Sangla	500	30.00	15,000
Sharavan Kumar	500	13.03.07	Mukesh Sangla	500	30.00	15,000
Mohan Singh Siddu	500	13.03.07	Mukesh Sangla	500	30.00	15,000
Ashok Kumar Sahu	500	13.03.07	Mukesh Sangla	500	30.00	15,000
Shailesh Vyas	500	13.03.07	Mukesh Sangla	500	30.00	15,000
Ajay Garud	500	13.03.07	Mukesh Sangla	500	30.00	15,000
Parvati Bai Bable	500	13.03.07	Mukesh Sangla	500	30.00	15,000
Ramesh Nimbalkar	500	13.03.07	Mukesh Sangla	500	30.00	15,000
D.N. Vyas	500	13.03.07	Mukesh Sangla	500	30.00	15,000
Hari Shankar Gaud	500	13.03.07	Mukesh Sangla	500	30.00	15,000
Jagjit Singh Punjabi	500	13.03.07	Mukesh Sangla	500	30.00	15,000
Ashok Awesthi	500	13.03.07	Mukesh Sangla	500	30.00	15,000
Kishorilal Patel	500	13.03.07	Mukesh Sangla	500	30.00	15,000
Rajesh Seth`	500	13.03.07	Mukesh Sangla	500	30.00	15,000
PahdurangPahalkar	500	13.03.07	Mukesh Sangla	500	30.00	15,000
Surendra Singh Chadda	500	13.03.07	Mukesh Sangla	500	30.00	15,000
	22,88,025			22,88,025		9,19,40,056			22,88,025		9,44,90,310

CHART II

[Further transfer of 22,88,025 shares of Chart-I and 3,10,550 shares originally held by

Shri Jagjit Singh Anand and Gajendra Kaur Anand = 25,98,575 Shares]

Name of shareholder of Anand Family	No. of shares held	2nd Transfer					3rd Transfer
		Date	Name	No. of shares	Rate	Amount	Date	Name	No. of shares	Rate	Amount
Jagjit Singh Anand	310,550	13.03.07	Shalimar Ferrous Metals Pvt. Ltd.	310,550	40.25	12,500,000	10.12.07	Lucky Commotrade Pvt Ltd	2,598,575	41.37	107,510,026
Gajendra Kaur Anand
	310,550			310,550		12,500,000			2,598,575		107,510,026

 

4th Transfer					5th transfer					6th transfer
Date	Name	No. of shares	Rate	Amount	Date	Name	No. of shares	Rate	Amount	Date	Name	No. of shares	Rate	Amount
05.03.08	Dooldrum Investemn t& Finance Pvt ltd	7,20,300	41.46	2,98,63,638	08.09.09	Saurabh Sangla	2,59,750	11.50	29,87,125
					08.09.09	Mukesh Sangla	4,60,550	11.50	52,96,325
							7,20,300		82,83,450
12.03.08	Oshin Investmen t & Finance Pvt Ltd	6,36,075	40.48	2,57,48,316	12.09.09	Mukesh Sangla	1,89,275	12.25	23,18,619
					12.09.09	Saurabh Sangla	1,18,550	12.25	14,52,238
					12.09.09	Smt. Avantika Sangla	2,00,000	12.25	24,50,000
					12.09.09	Can India Overseas	1,28,250	12.25	15,71,063	22.09.09	Signet Impex Pvt Limited	1,28,250	12.25	15,71,063
							6,36,075		77,91,919			1,28,250		15,71,063
15.03.08	Gyneshwar Trading & Co. ltd	6,21,100	40.95	2,54,34,045	08.09.09	Saurab hSangla	2,10,550	12.00	25,26,600
					08.09.09	Mukesh Sangla HUF	2,00,000	12.00	24,00,000
					08.09.09	Monika Sangla	2,10,550	12.00	25,26,600
							6,21,100		74,53,200
28.03.08	Sidh Housing Development Company Ltd	6,21,100	40.90	2,54,02,990	12.09.09	Mukesh Sangla HUF	1,60,550	11.50	18,46,325
					12.09.09	Monika Sangla	1,60,550	11.50	18,46,325
					12.09.09	Avantika Sangla	3,00,000	11.50	34,50,000
							6,21,100		71,42,650
		25,98,575		10,64,48,989			25,98,575		3,06,71,219

CHART III

[Flow of transfer of 12,94,775 shares originally held by Manjeet Kaur Anand]

Name of shareholder of Anand Family	No. of shares held	1st Transfer					2nd Transfer
		Date	Name	No. of shares	Rate	Amount	Date	Name	No. of shares	Rate	Amount
Manmeet Kaur Anand	1,294,775	13.03.07	Lucky Commotrade Pvt Ltd	1,294,775	40.25	52,114,694	10.03.09	Ispat Sheets ltd	397,540	40.55	16,120,247
							19.03.09	Clifton Securities Pvt Ltd	272,235	40.50	11,025,518
							19.03.09	Novelty Traders Ltd	375,000	40.55	15,206,250
							10.03.09	Olmpus Vision Pvt Ltd	250,000	40.50	10,125,000
	1,294,775			1,294,775		52,114,694			1,294,775		52,477,015

 

3rd Transfer					4th transfer
Date	Name	No. of shares	Rate	Amount	Date	Name	No. of shares	Rate	Amount
		0	0	0	25.09.09	Swan-Holding Pvt Ltd	1,52,500	11.50	17,53,750
					26.09.09	Ornate Leasing & Finance Pvt Ltd	2,45,040	11.50	28,17,960
							3,97,540		45,71,710
20.03.09	Ispat Sheet Ltd	2,72,235	40.50	1,10,25,518	28.09.09	Shree Balaji Starch & Chemicals Ltd	2,72,235	11.50	31,30,703
		0	0	0	22.09.09	Signate Leasing & Finance Pvt Ltd	1,87,500	11.50	21,56,250
					24.09.09	Signet Impext Pvt Ltd	1,87,500	11.50	21,56,250
							3,75,000		43,12,500
20.03.09	Novelty Traders Pvt Ltd	2,50,000	40.50	1,01,25,000	26.09.09	Shree Balaji Starch & Chemicals Ltd	2,50,000	11.50	28,75,000
							12,94,775		1,48,89,913

CHART IV

[Flow of transfer of 2,37,500 shares originally held by Jagjit Singh Anand & Gajendra Kaur Anand]

Name of shareholder of Anand Family	No. of shares held	1st Transfer					2nd Transfer
		Date	Name	No. of shares	Rate	Amount	Date	Name	No. of shares	Rate	Amount
Jagjit Singh Anand	2,37,500	13.03.07	Monika Sangla	2,37,500	40.25	95,59,375	30.10.07	SiddachalDevlo pers P. Ltd.	21,500	46.00	9,89,000
Gajendra Kaur Anand
							30.10.07	Anikant Share & Security	21,500	46.00	9,89,000
							30.10.07	Samyank Share & Stock Brokers	21,500	46.00	9,89,000
							30.10.07	Sea Entertainment Ltd.	21,500	46.00	9,89,000
							30.10.07	Sky touch Infracture	28,000	46.00	12,88,000
							30.10.07	Palasia Leasing & Finance Ltd.	47,500	46.00	21,85,000
							30.10.07	Uno Industries Ltd.	76,000	46.00	34,96,000
	2,37,500			2,37,500		95,59,375			2,37,500		1,09,25,000

 

3rd Transfer					4th Transfer
Date	Name	No. of shares	Rate	Amount	Date	Name	No. of shares	Rate	Amount
12.08.09	Can-India Overseas Limited	21,500	11.50	2,47,250	21.09.09	Ornate Leasing Pvt Ltd	97,000	11.38	11,03,625
13.08.09	Can-India Overseas Limited	21,500	11.25	2,41,875	23.09.09	Signate Leasing Pvt Ltd	64,500	11.33	7,30,785
13.08.09	Can-India Overseas Limited	21,500	11.50	2,47,250	23.09.09	Swan-Holding Pvt Ltd	76,000	11.50	8,74,000
14.08.09	Can-India Overseas Limited	21,500	11.25	2,41,875
17.08.09	Can-India Overseas Limited	28,000	11.50	3,22,000
18.08.09	Can-India Overseas Limited	47,500	11.25	5,34,375
19.08.09	Can-India Overseas Limited	76,000	11.50	8,74,000
		2,37,500		27,08,625			2,37,500		27,08,410

CHART V

Name of shareholder of AnandFamily	No. of shares held	1st Transfer
		Date	Name	No. of shares	Rate	Amount
Virendra Singh Anand	1,490,650	13.03.07	Signet Overseas Ltd.	1,490,650	40.25	60,000,403
Narinder Kaur Anand
Yogendra Bhatia	750	05.06.08	Mukesh Sangla	750	30.00	22,500

50. The reduction in market value of Adroit Industries (India) Ltd. from Rs. 40.25 in Financial Year 2006-07 to Rs. 11.25 to Rs. 12.25 in Financial Year 2009-10 is beyond comprehension particularly when the company is consistently earning higher profits as observed by the A.O. The learned CIT(A) also observed that it is beyond comprehension that the Signet Group, Sangla family and its associate concerns would divest about 75% of their holding to unrelated parties after taking over the control and management of Adroit Industries (India) Ltd. The contention of the assessee about public issue of Adroit Industries (India) Ltd. in future being a reason for divestment is also unconvincing. Relying upon the case of C.I.T. vs. Rathi Finlease Ltd. (2008) 215 CTR 429 (MP) and Industrial Filters and Fabrics Pvt. Ltd. [Appeal No.IT-185/09-10/510 order dt.30.03.2012 passed by C.I.T.(A), Indore], it was held that the intermediary companies like Shri Aniket Shares and Securities Pvt. Ltd., Unno Industries Ltd., Siddhachal Developers Pvt. Ltd. and Palasia Leasing and Investment Pvt. Ltd. were entry providers. Further, in case of Signet Industries Ltd., it was held that Lucky Commotrade Pvt. Ltd. is a paper company which is used by the Sangla group to introduce unsecured loan and share application money within the group concerns. The transaction of transfer of shares of Adroit Industries (India) Ltd. by various members and concerns of Sangla group were only accommodation entries and not genuine transactions and therefore, the amount of sale proceeds credited in the books of various members and concerns of Sangla group amounted to unexplained cash credit in the Assessment Year 2008-09. However, the short term capital gain which was offered for taxation by various entities of the assessee group were reduced from sale proceeds. The working in this regard is as under:

No. of shares sold	Rate (Rs.)	Sale proceeds (Rs.)	Short term capital gain (Rs.)	Unexplained cash credit (Rs.)
32,875	44.80	14,72,800	1,49,580	13,23,220

For the Assessment Year 2010-11, assuming fair market value of the shares at Rs. 40.25 (original cost of acquisition from Anand Family in March 2007), the difference between the cost of reacquisition and fair market value was treated as unexplained investment. However, to avoid double taxation, addition on account of unexplained investment was not made in relation to shares sold by the group entities in Assessment Year 2008-09 as their sale proceeds was brought to tax u/s.68 as unexplained cash credit. The working in this regard is as under:

No. of Shares	Actual Rate per share (Rs.)	Purchase Rate declared per share (Rs.)	Difference	Unexplained Investment
A	b	c	d (b – c)	e (d x a)
	40.25	12.00	28.25	47,21,281
	40.25	11.50	28.75	46,15,813
3,27,675				93,37,094

 Accordingly, the following additions were partly confirmed :

Asstt. Year	Amount (Rs.)	Remarks
2008-09	13,23,220	Unexplained Cash Credit
2010-11	93,37,094	Unexplained Investments

51. Before us, it is submitted that the source of investment by Signet Group, members of Sangla Family and its associate concerns in March 2007 for acquiring 56,21,500 shares of Adroit Industries (India) Ltd. alongwith its control and management was not disputed by the Revenue Authorities. The source of investment in the shares of Adroit Industries (India) Ltd. was mainly out of loans provided by Signet Industries Ltd. and partly by unsecured inter-corporate loans, which were advanced to various group entities and Lucky Commotrade Pvt. Ltd. through Shalimar Ferrous Metals Pvt. Ltd. (‘Shalimar’). The assessee has submitted a fund flow chart in this regard. Shalimar Ferrous Metals Pvt. Ltd. (‘Shalimar’) was incorporated on 18.06.1986 under the provisions of the Companies Act, 1956, having PAN No. AAICS 4429G. It was regularly assessed to tax. The assessment for assessment year 200708 was completed u/s.143(3) r.w. Sec.264 of the Income-tax Act, 1961. The returned income was accepted. During financial year relevant to the assessment year 2007-08 Shalimar Ferrous Metal Pvt. Ltd. received unsecured loan from following entities :-

Name of the company	P.A.No.	Amount (Rs.)
Nalanda Merchant Pvt. Ltd. (Out of loan of Rs. 3,50,00,000/- given by Signet Overseas Ltd.)	AACCN 2446 C	3,50,00,000
RatnagiriVinimay Pvt. Ltd.	AABCR 1870 R	15,00,000
Utility Exim Pvt. Ltd. (Out of loan of Rs. 3,50,00,000/- given by Signet Overseas Ltd.)	AAACU 8022 B	3,50,00,000
Anubhav Infrastructure Pvt. Ltd.	AAFCA 5482 J	40,00,000
Snehshil Marketing Pvt. Ltd.	AAJCS 5894 E	50,00,000
Lekhraj Steel Pvt. Ltd.	AABCL 0866 B	2,05,000
Kamdeep Marketing Pvt. Ltd.	AAACK 9556 A	2,30,000
Signet Overseas Ltd.	AABCS 3489 F	5,46,05,407
Bank Overdraft (Cheque issued but not presented for payment in the bank and cleared in the immediately succeeding year out of loan of Rs. 3,73,15,000/- received from Signet Overseas Ltd.)		3,58,47,845
		17,13,88,252

 The unsecured loans so received were advanced to the following persons/entities for acquiring shares of Adroit Industries (India) Ltd. :-

Name of the company	P.A.NO.	Amount (Rs.)
Group Companies
Ornate Leasing & Finance Pvt. Ltd.	AABCO 1101 A	14,20,000
Signet Leasing & Finance Pvt. Ltd.	AAMCS 5841 G	1,26,00,000
Swan Holding Pvt. Ltd.	AAHCS 5640 Q	80,50,000
Signet Impex Pvt. Ltd.	AAICS 5582 Q	1,26,60,000
Swan Petrochemicals Pvt. Ltd.	AABCR 9592 C	1,24,40,000
Smt. Monika Sangla	ANAPS 5580 Q	1,83,32,399
Shri Saurabh Sangla	ANBPS3195 G	1,53,41,162
Shri Mukesh Sangla	ANAPS 5579 F	1,34,62,000
Shri Mukesh Sangla HUF	AADHM 4930 J	81,947
Smt. AvantikaSangla	AEOPG 4774 R	60,000
Non-group Companies
Lucky Commotrade Pvt. Ltd.	AAACL 4501 E	5,21,14,350
Pranay Trade Link Pvt. Ltd.	AADCP 0735 F	1,26,20,000
		15,91,81,858

52. The members of Sangla family and its associate concerns sold 22,88,025 shares of Adroit Industries (India) Ltd. to Shalimar Ferrous Metals Pvt. Ltd. (‘Shalimar’) in May 2007 for a consideration ranging from Rs. 40.35 to Rs. 44.80 per share. As the members of Sangla family and its associate concerns had taken loan from Shalimar while acquiring the shares of Adroit Industries (India) Ltd., the sale proceeds of shares were adjusted against outstanding unsecured loans.

53. Lucky Commotrade Pvt. Ltd. is a closely held nonbanking financial company incorporated on 16.03.1994 having PAN No. AAACL 4501 E. It is not a group concern or associate concern of Signet Group. It is having an independent Board of Directors. Its Share Capital and free reserves as on 31.03.2005, stood at Rs. 1,28,80,000/- and Rs. 9,34,20,000/- respectively. For A.Y.2007-08 the Shareholders Fund stood at Rs. 10,63,97,734/-. The assessment for A.Y.2007-08 was completed u/s.143(3) and total income assessed was Rs. 1,23,92,580/-. The assessment for A.Y.2005-06 was also completed u/s. 143(3). Copy of order was placed before the lower authorities. The financial capacity of the company and its creditworthiness stood established from the following table showing its financials as:

Assessment years	Paid-up share capital	Free reserves	Profit for the year	Taxes paid
2008-09	1,28,80,000	9,35,17,734	1,17,408	44,400
2009-10	1,28,80,000	9,40,46,001	6,04,107	75,840
2010-11	1,28,80,000	9,63,52,036	34,40,035	11,34,000
2011-12	1,28,80,000	9,78,27,075	22,03,439	7,28,400
2012-13	1,28,80,000	9,85,63,971	11,54,896	4,18,000

Once the Income-tax department, Kolkata assessed Lucky Commotrade Private Ltd. u/s. 143(3) for Assessment Year 2005-06 and Assessment Year 2007-08, Income-tax department, Indore has no locusstandito treat it as a ‘bogus paper company’ and a ‘known entry provider’particularly when no investigation what so ever was conducted by it and not an iota of evidence was brought on records in support of such serious and baseless allegations. In fact, during the entire assessment proceedings u/s.153A/153C of the Act in respect of almost all the assessees of the group, the authorities below did not issue even a single notice to it u/s.133(6) to collect information or summon u/s 131 for making investigation. Therefore, these charges against Lucky Commotrade Private Ltd. are baseless, hearsay and mere conjectures and surmises. In case of Lal Chand BhagatAmbica Ram Vs. C.I.T. 37 ITR 288, honourable Supreme Court strongly disapproved the practice of making addition in the assessment on mere suspicion and surmises or taking note of so called notorious practice prevailing in trade circles.

54. Shalimar sold its shareholding in Adroit Industries (India) Ltd. to Lucky and the proceeds thereof were utilized for repayment of inter-corporate loan to Signet Industries Limited. This fact was explained to the lower authorities with evidence like bank statements of Shalimar, Lucky and Signet, duly confirmed copies of accounts. But the same was brushed aside by them on the pretext that Lucky sold its holding to various ‘bogus paper companies’ notwithstanding the fact that these so called bogus paper companies produced all the documents as required by the A.O. in terms of notice u/s 133(6) for verification of transaction and establishing their identities and creditworthiness. Surprisingly, the lower authorities did not bother to even look into them and give any finding in this regard. Therefore the transfer of shares by Signet group and Sangla family was genuine transaction. It appears that in the eyes of Income-tax Department, all the finance and investment companies operating from Bombay and Kolkata are bogus paper companies. Notwithstanding plethora of evidence placed before it to establish identity and creditworthiness and genuineness of transaction.

55. The divestment of shareholding of Adroit Industries (India) Ltd. to the extent of 73.5% was necessitated due to perilous financial position of the entire group due to huge cash outflow of about Rs. 22.61 crores to finance the acquisition. It is not uncommon for the promoters to divest their investment prior to public issue, collect funds to unburden the company of its financial liabilities and provide an honourable exit to the investors. However, due to negative stock market sentiments (Sensex fell from high of 20,500 in 2007 to lows of 8,000 in 2009), the public issue did not materialize despite utmost efforts of the promoters. Further, the auto industry globally was facing tremendous recession and uncertainty as evident from BSE Auto Index which fell from a high of 5,900 in 2007 to lows of 2,350 in 2009. The turnover of Adroit Industries (India) Ltd. declined from Rs. 24.61 crores in Financial Year 2008-09 to Rs. 16.88 Crores in Financial Year 2009-10. Although the profit showed an increase from Rs. 2.23 Crores to Rs. 3.13 Crores but it was due to valuation of work-in-progress which was written off in Financial Year 2011-12. Also, the company was facing severe labour problems with the arrival of trade unions and ultimately the entire work force was laid off after incurring a huge severance cost. With these problems, the investors wanted an honourable exit which are ultimately provided by the promoters i.e. Signet Group after protracted negotiations by acquiring shares at a mutually agreeable price band of Rs. 11.25 to Rs. 12.25. The details of investors were placed on record and had also been reproduced in the assessment order. Therefore, the inference of the assessing officer that no investor was named by the assessee is totally baseless. The multiple transfers in some cases were due to requirements and convenience of investing companies and their promoters. Generally, the investors enter a company before its public issue with the intention to earn significant gains on listing of shares. However, sometimes their calculation go haywire and they have to exit at a significant loss particularly in a situation in which most of the public issues devolved on bankers and guarantors and there was no public participation. The same is evident from the fact that many IPOs were withdrawn or deferred by various companies during this period and no of IPOs fell from 108 in 2007 to 22 in 2009. In the case of Adroit Industries (India) Ltd., the promoters made utmost efforts to bring IPO and incurred significant cost (about Rs. 83.80 Lacs) in this pursuit but they could not achieve any success due to negative market conditions and sentiments as discussed above. The statement of directors of Shalimar viz. Shri Paras Ram Patidar and Shri Vimal Kumar Bandi was recorded after a lapse of over 4 years (acquisition of shares in May 2007 and their statement was recorded in November 2011). Moreover, the day to day affairs of Shalimar were looked after by the employees of Signet Group and controlled by Shri Mukesh Sangla as its executive officer. As the transactions were verifiable from bank statements of relevant entities, the statements of its directors do not have much significance in relation to creditworthiness and genuineness of transactions. If the transaction with alleged bogus paper companies is held to be colourable device and arrange and managed affair as per the contention of the revenue authorities, the benefit of loss was derived by these intermediary companies and the action should have been taken in their case. As the assessee group did not derive any tax benefit, it cannot be penalized for failure, if any, of intermediary companies to justify acquisition of shares at a higher price as well as their subsequent divestment at the lower price. Shri Ramchand Kedia, the directors of Lucky Commotrade Pvt. Ltd. is a close friend of Shri Mukesh Sangla, head of Signet Group and Sangla Family. Also, there were regular financial transactions between Lucky and various Signet Group Companies. To save cost of transfer of funds, interest cost and facilitating movement of funds, Lucky opened a banking account at Indore and Shri Ramchand Kedia kept a signed cheque book with Shri Mukesh Sangla. There was a clear understanding between the two that Shri Mukesh Sangla would give complete account of transaction to Lucky immediately and reconcile the account interse. Therefore, there was nothing suspicious about cheque book of Lucky having been found with Shri Mukesh Sangla during search particularly when all the transactions were at Arm’s Length, recorded in the regular books of accounts of respective entities and interest bearing. There were no cash transactions between Lucky and Signet Group entities. As regard Palasia Leasing & Finance Ltd., the honourable Madhya Pradesh High Court confirmed the addition of Rs. 5 Lacs in the case of Rathi Finlease (215 CTR 429) because summon could not be served on it during enquiry by the assessing officer. The High Court never held that Palasia Leasing was a ‘Bogus paper company’ and known entry provider. In the assessee’s case, the notice u/s.133(6) were duly served and the copies of bank statements and other requisite details were filed before the assessing officer in which the transactions were duly reflected. Therefore, the inference of C.I.T.(A) is without appreciation of the judgement as well as the facts placed on record. As regard Shri Anekant Shares and Securities Pvt. Ltd., Unno Industries Ltd., Siddhachal Developers Pvt. Ltd., the assessee was not given the copy of judgement passed by C.I.T.(A) II, Indore in the case of Industrial Filters and Fabrics Pvt. Ltd. and therefore, the same cannot be used for adverse inference against the assessee. Moreover, in compliance of notice issued u/s.133(6), these companies furnished the copies of their bank account, return of income filed by them etc. in which the transactions were duly reflected and no discrepancy whatsoever was brought on record by the lower authority. As regard Can-India Overseas Ltd., it was a company in which the close relatives of Shri Mukesh Sangla were shareholders and directors. The company was filing its return of income regularly and also assessed to tax. Its paid up share capital was Rs. 30 Lacs and free reserves of Rs. 30 Lacs. As at 31.03.2010, it had a cash and bank balance of Rs. 41,79,012/- and investment of Rs. 8,80,000/- in 2,40,000 shares (including bonus shares 1,60,000) of Signet Industries Ltd. Under these circumstances, the Can-India Overseas Ltd. cannot be called a bogus paper company.

56. Section 69 of the Act is applicable on cumulative satisfaction of the following conditions :

i. The assessee should have made the investments and the same are not recorded in the books of accounts; and

ii. The assessee either offers no explanation about the nature and source of investment or the explanation offered is not satisfactory in the opinion of the assessing officer.

iii. The satisfaction of the assessing officer cannot be arbitrary and subjective but has to be based on the relevant material

b) Sec.69B is applicable on cumulative satisfaction of the following conditions:

i. The assessee should have made the investments or is found to be the owner of any bullion, jewellery or valuable articles;

ii. Based on the material facts, the assessing officer finds that the amount expended on such investment actually exceeds the amount

recorded in the books of account; and

iii. The assessee either offers no explanation about the nature and source of investment or the explanation offered is not satisfactory in the opinion of the assessing officer.

iv. The satisfaction of the assessing officer cannot be arbitrary and subjective but has to be based on the relevant material

57. Wherever the legislature desired determination of income in a specific manner or existence of certain state of affairs, it has specifically provided for in relevant sections. Sec.69 and Sec.69B dealing with taxation of unaccounted investments are deeming provision and does not deal with presumptive taxation of unaccounted/under-valued investments. In absence of the clear legislative mandate, the A.O. cannot presume market value/fair value of investments and make addition under Sec.69 or Sec.69B of the Act. Reliance is placed upon the following judgements:

 (i) C.I.T. Vs. Naveen Gera 328 ITR 516 (Del)

 (ii) C.I.T. Vs. Dinesh Jain HUF 352 ITR 628 (Del)

(iii) Rupee Finance & Management Pvt. Ltd. Vs. A.C.I.T. 119 TTJ 643 (Mum Trib)

58. In the assessee group cases,the original purchase of shares at Rs. 40.25 per shares as well as reacquisition of shares at Rs. 11.25 to Rs. 12.25 were duly recorded in the books of accounts of the respective assessee. A chart showing source of re-acquisition of shares by Signet Group, members of Sangla family and other associate concerns was filed. The revenue did not bring any evidence to show that actual consideration paid by the assessee group either at the time of original acquisition or at the time of reacquisition was more than the stated and recorded consideration in the books of respective assessee. The A.O. merely presumed the fair value of shares at Rs. 40.25 per share (original cost of acquisition from Anand Family in March 2007) and treated the difference between the cost of reacquisition and fair value per share as unexplained investment in the case of the assessee, without bringing any evidence on record. He simply rejected the explanation given by the assessee group. In the assessee’s case, there were no incriminating material whatsoever in relation to investment in shares of Adroit Industries (India) Ltd. in assessment year 2007-08, transfer of these shares in assessment year 2008-09 and their reacquisition subsequently in assessment year 2010-11. No proceedings in relation to assessments for these assessment years were pending and therefore no addition could have been made in assessment completed u/s.153A/153C of the Act in the absence of any incriminating material on account of unexplained cash credits in assessment year 2008-09 and unexplained investment in assessment year 2010-11. The addition made by the assessing officer by way of reassessment in relation to impugned concluded assessments amounted to change in opinion on the same set of facts which is not permissible in law even u/s.153A/153C of the Act.

59. The learned DR relied upon the orders of the authorities below and pleaded that no promoter would divest majority of all the shareholdings and that too at a nominal profit when a public issue was anticipated in near future. He also submitted that Adroit Industries (India) Ltd. was a profit making company and no prudent businessman will divest the huge investment. He also pleaded that the assessee’s contention that the assessee could not go for public issue due to capital market situation is also not justified. These shares have changed many hands before coming Signet group which is usually not possible in unlisted shares. He also pleaded that the assessee has not brought on record anything to show that sale proceeds were utilised in discharging the interest bearing liabilities and he pleaded that it is not possible to accept the assertions of the assessee with regard to disinvestment that it was to reduce the risk of the group. He pleaded that the disinvestment of shares of Adroit Industries (India) Ltd. was a sham transaction. He relied upon the orders of the Assessing Officer and the learned CIT(A) on this issue. He also drew our attention to various case laws relied on by him.

60. In earlier part of this order, we have held that the assessments framed u/s 153A r.w.s. 143(3) of the Act against the assessee are not as per law. However, we are also deciding the issue on merits of the addition made of Rs. 13,23,220/- in respect of sale proceeds of 32,875 shares of Adroit India Limited in the assessment year 2008-09 as unexplained income of the assessee and also issue regarding the addition made on account of unexplained investment in shares of Adroit Industries Limited of Rs. 93,37,094/- in the assessment year 2010-11. The Sangla family and associates acquired management and controlling rights in Adroit Industries Ltd. which was 100% export oriented auto ancillary unit from Anand family in the month of March, 2007. There is no dispute regarding the price of shares paid for acquiring shares from Anand Family as well as to other persons. In May, 2007 some of the shares were sold by the assessee and other group persons and associates. The resultant short term capital gain was offered for taxation in the return of income. There was no incriminating document seized during the search operation in relation to acquisition of shares of Anand family and transfer of shares by the assessee. The assessee has explained the reason for transfer of shares to raise the funds. It is also established that Adroit Industries Ltd. was to go for public issue for which expenditure has been debited in the financial years 2010-11 and 2011-12. Ultimately this public issue could not be materialised. The expenditure debited in the books of Adroit Industries Ltd. establishes that Adroit Ind. Ltd. was to go to for public issue. No evidence either during the search operation or in the post search inquiries showing even suggesting that any consideration over and above recorded in the books of accounts of any assessee of Signat group was realised in cash or otherwise. Even no positive evidence was collected during the proceedings u/s 153A/153C of the Act. Thus, there is no evidence regarding any unaccounted transaction with relation to shares acquired, transferred and re-acquired by various family members of Sangla family and associate concerns. The revenue’s claim that no promoter would divest with such a huge holding at a very nominal profit is without any basis and only a guess work. The assessee’s contention that the promoters were intended to go for public issue is well established by the fact that expenditure incurred in this regard has been debited in the books of accounts of Adroit Industries Ltd., therefore, the revenue’s contention that the promoters were not intended to go for public issue is not correct. In our considered view, all such allegations are wild and without any basis. The revenue has even failed to bring anything on record to establish that any unaccounted transaction in any form was done by any of the persons of this group and associates. There is no evidence against the assessee with regard to transfer and reacquisition of shares of Adroit Industries Ltd. during the relevant period to the assessment years 2007-08, 2008-09 and 2010-11 respectively. The revenue’s allegations are general and not supported by any evidence. In our considered view, no addition could be sustained only on the basis of guess work or in the absence of any positive evidence. In view of this factual matrix, we find no merit in the addition made in the assessment year 2008-09 on the transfer of shares of Adroit Industries Limited and also the addition made for unexplained investment on account of reacquisition of shares of Adroit Industries Ltd. during the financial year 2010-11. We direct to delete the same.”

15. The facts of the assessee’s case are the same as of the decided cases, therefore, in view of that we direct to delete these additions.

GROUND NO.3.0 (A.Y. : 2012-13) OF THE ASSESSEE’S APPEAL

Ground No.3.0 (A.Y. : 2012-13) of assessee’s appeal reads as under :

ASSESSMENT YEAR : 2012-13

 ADDITION ON THE BASIS OF ASSESSEE’S STATEMENT U/S.132(4) : Rs. 9,43,55,415/-

3.0 The learned Commissioner of Income-tax (Appeals) erred in law as well as in facts, partly confirming the addition of Rs. 9,43,55,415/- on account of undisclosed income admitted by the assessee in his statement recorded u/s.132(4) of the Income-tax Act, 1961 notwithstanding the fact such an addition was not represented by corresponding unexplained assets, unexplained investment or unexplained transactions in the seized material etc..

16. The facts briefly stated are that in his statement recorded u/s.132(4) on 04.11.2011, the assessee offered undisclosed income of Rs. 45 crores for taxation, subject to verification of the seized material. During post search proceedings, the assessee filed a letter before the Investigation Wing admitting undisclosed income of Rs. 35.04 crores for various assessment years in his own case and Rs. 9.96 crores in the case of Signet Industries Ltd. for the assessment year 2012-13 on the basis of provisional verification of seized material and assets. However, for the assessment year 2012-13, no income was offered for taxation by the assessee in his Return of Income filed u/s.153A as against undisclosed income of Rs. 12.61 Crores offered for taxation as per the letter filed before the Investigation Wing. The A.O. did not make any addition on the basis of assessee’s statement because the total income assessed by him was more than Rs. 12.61 Crores offered for taxation in assessment year 2012-13. The first appellate authority made addition of Rs. 9,43,55,415/- on the basis of difference between undisclosed income of Rs. 12.61 crores offered for taxation by the assessee in his statement u/s.132(4) r.w. letter filed before the Investigation Wing and addition of Rs. 3,17,44,585/- confirmed by him for the assessment year 2012-13 vide his order dt.30.04.2015.

17. The contention of the C.I.T.(A). is summarized as under :

a) The statement of the assessee recorded u/s.132(4) was a voluntary statement made without any intimidation, duress or coercion and was signed in the presence of two independent witnesses.

b) The admission of the assessee u/s.132(4) is an evidence to be used against him for the purpose of determination of total income. It may be noted that the total seizure by the Income-tax department was more than 30,000 pages.

c) The undisclosed income for assessment year 2012-13 was offered for taxation after verification of seized material, the copies of which had already been provided to the assessee.

d) For assessment year 2012-13, the assessee declared undisclosed income of Rs. 12.61 Crores on the basis of LPS-3 and other papers seized from various premises in his statement u/s.132(4) read with letter furnished before the A.D.I.T. (Inv.), Indore, but did not offer any undisclosed income for taxation in the Return of Income filed pursuant to notice u/s.153A.

e) The undisclosed income for assessment year 2012-13, finally determined by the C.I.T.(A) was Rs. 3,17,44,585/-

. As it fell short of Rs. 12.61 Crores declared in the statement u/s.132(4) by Rs. 9,43,55,415/-

[Rs. 12,61,00,000/- (-) Rs. 3,17,44,585/-], the difference of Rs. 9,43,55,415/- was brought to tax on the basis of assessee’s statement u/s. 132(4).

f) The reliance was placed upon the following judgements:

 i. Ishwardin Mewalal vs. C.I.T.[1986] 169 ITR 584 (MP)

ii. Dr. S.C. Gupta vs. C.I.T. [2001] 248 ITR 782 (All)

iii. S.S. Ratanchand Bholanath vs. C.I.T. [1984] 210 ITR 682 (MP)

iv. Hira Singh & Co. vs. C.I.T. [1998] 230 ITR 791 (HP)

v. A.C.I.T. vs. Hukum Chand Jain [2011] 337 ITR 238 (Chhattisgarh)

vi. Kesri K. Deboo vs. A.C.I.T. [2009] 313 ITR 186 (Bom)

vii. Bhagirath Aggarwal vs. C.I.T.[2013] 31 taxmann.com 274 (Del)

viii. Ravindra Kumar Verma vs. C.I.T. [2013] 30 taxmann.com 367 (All)

ix. Sudharshan P. Amin vs. A.C.I.T. [2013] 35 taxmann.com 370 (Guj)

x. C.I.T. vs. O. Abdul Razak [2012] 20 taxmann.com 48 (Ker)

18. The learned counsel for the assessee submitted that the statement u/s.132(4) made before the Income tax Authorities is an important piece of evidence but it is neither universal truth nor conclusive. The statement is rebuttable and the deponent can always show that it was incorrect. As the statement u/s.132(4) is recorded under great stress, anxiety and tension and the deponent does not have access to books of accounts and other documents to verify the facts before recording it in his statement, it cannot be said that such a statement recorded during search is free from all ambiguity and doubts and it is quite likely that certain vital facts might be omitted or ignored or incorrectly stated. The statement u/s.132(4) is not a test of deponent’s memory. If he has stated something in his statement either out of ignorance of certain vital facts or negligence or for nonaccessibility to the books of accounts and other relevant documents or for any other reason, which is contrary to the established facts of the case, he cannot be assessed to tax merely on the basis of such erroneous statement. The assessing officer being a quasi judicial officer, should consider all the facts and evidences like books of accounts, documents, bills, agreements, seized documents etc. to arrive at the truth and correct status. The statement should be corroborated with the facts found and documents seized at the time of search to ascertain its reliability. The deponent cannot be assessed merely on the basis of statement u/s 132(4), particularly by brushing aside certain uncontroverted facts. If evidence brought on record by the deponent shows his admission to be incorrect or contrary to the facts and such evidence remain uncontroverted, addition made merely on the basis of admission cannot be sustained. The surrounding circumstances and other relevant factors have to be considered before making an addition solely on basis of admission. The learned counsel for the assessee placed reliance on the following judgements:

(i) The honourable Supreme Court held in the case of Pullangode Rubber Products Co. Ltd. vs. State of Kerala & Anr. (91 ITR 18) that an admission in statement recorded on oath is an extremely important piece of evidence but it cannot be said that it is conclusive and it is always open to the person who made the admission to show that it is incorrect.

(ii) The honourable Supreme Court held in the case of Krishnan vs. Kurushetra University (AIR 1976 SC 377) that mere admission cannot be bedrock or foundation of an assessment and it is always open to the assessee who made the admission to show that what he admitted was not correct. The honourable Supreme Court also observed that the effect of an alleged admission depends upon the circumstances in which it was made. A statement made in ignorance of legal rights or under duress cannot bind the maker of the admission.

(iii) The honourable Jharkhand High Court held in the case of Shree Ganesh Trading Co. vs. C.I.T. (2013) (30 taxmann.com 170) that ‘We are of the considered opinion that statement recorded under section 132(4) of the Income-tax Act, 1961 is evidence but its reliability depends upon the facts of the case and particularly surrounding circumstances. Drawing inference from the facts is a question of law. Here in this case, all the authorities below have merely reached to the conclusion of one conclusion merely on the basis of assumption resulting into fastening of the liability upon the assessee. The statement on oath of the assessee is a piece of evidence as per section 132(4) of the Income-tax Act and when there is incriminating admission against himself, then it is required to be examined with due care and caution. In the judgment of Kailashben Manharlal Chokshi (supra), the Division Bench of Gujarat High Court has considered the issue in the facts of that case and found the explanation given by the assessee to be more convincing and that was not considered by the authorities below. Here in this case also, no specific reason has been given for rejection of the assessee’s contention by which the assessee has retracted from his admission. None of the authorities gave any reason as to why Assessing Officer did not proceed further to enquire into the undisclosed income as admitted by the assessee in his statement under section 134(2) in fact situation when during the course of search, there was no recovery of assets or cash by the Department. This fact also has not been taken care of and considered by any of the authorities that in a case where there was search operation, no assets or cash was recovered from the assessee, in that situation what had prompted the assessee to make declaration of undisclosed income of Rs. 20 lacs. Mere reading of statement of assessee is not the assessment of evidentiary value of the evidence when such statement is self-incriminating. Therefore, we are of the considered opinion that in the present case, a wrong inference had been drawn by the authorities below in holding that there was undisclosed income to the tune of Rs. 20 lacs.’

(iv) The honourable Punjab and Haryana High Court held in the case of Krishan Lal Shivchand Rai vs. C.I.T. (88 ITR 293) that the party is entitled to show by proof that the admission made by him previously is in fact not correct and true.

(v) The honourable Rajasthan High Court held in the case of C.I.T. Vs. Bhanwarlal (225 ITR 870) that no referable question of law arises where the Income-tax Appellate Tribunal deleted the addition made on account of unexplained household expenses on the basis of facts that it was a case where a prolonged search had taken place and the Revenue has not been able to find any evidence except the assessee’s own statement given under stress and strain and only giving an estimate on the basis of memory regarding an event which occurred about three years back.

(vi) The honourable Ahmedabad Bench of I.T.A.T. held in the case of A.C.I.T. vs. Sushiladevi S. Agarwal (50 ITD 524) that search operations under the Income-tax Act is a lawful invasion on the privacy, life and property of a citizen which may affect him/her mentally also, besides causing several other inconveniences, hardships, embarrassment and harassment. There is every likelihood of a statement tendered to or recorded by the searching officers on the search day being incoherent or at variance with subsequent statements tendered to or recorded in any further or collateral proceedings. But to make addition to the returned income or to put such person to sufferance or to adverse consequences on such statement is not justified in law. By this we are not saying or laying down that every statement recorded on the search day has to be ignored as of no consequence or that no reliance or credence should be placed on such search day statement. All that we wish to say but with little emphasis, is that all that is stated by any deponent on the search day should not be taken as the truth, the whole truth and nothing but the truth. Such statements indubitably have evidentiary value and credibility in law, but the same should be viewed with great caution particularly when the same is denied, varied or retracted or established by the defendant to have been obtained or given under mental stress, coercion, under influence or due to any other abnormal condition and circumstances when such statement was given. Any person may state different stories/versions to different persons/authorities on different occasions about certain facts. But when it comes to be tested or examined in a judicial or quasi-judicial proceedings before any Court, Tribunal or authority, then the question which arises for determination is as to which of the story/statement is right, truthful and/or reliable and believable.

(vii) The honourable Pune Bench of I.T.A.T. held in the case of Kasat Paper and Pulp Ltd. vs. A.C.I.T. (74 ITD 455) that addition cannot be made solely on the basis of the statement of Managing Director particularly when evidence to the contrary were placed on record before the assessing officer.

(viii) In the case of Jagdeeshchandra Gupta Vs. A.C.I.T. 56 TTJ 337 (Chd.), the assessee retracted from the statements made before FERA authorities and statement made u/s.132(4) of the Income-tax Act, 1961 before the A.D.I. by making detailed submission during proceedings u/s.132(5) as well as u/s.143(3) of the Income-tax Act, 1961. Except these confessional statements, there was no other evidence which supported the payment of Rs. 48,00,000/- to Shri J.M.Paul by the assessee. No papers indicating alleged payment of Rs. 48 lacs were seized either from residence of the assessee or from Shri J.M.Paul. Shri J.M. Paul also denied the payment in his statement recorded by ADI. On these facts and circumstances, the honourable Income-tax Appellate Tribunal deleted the addition of Rs. 48,00,000/-.

(ix) The honourable Mumbai Bench of I.T.A.T. held in the case of Ms. Aishwarya K. Rai vs. D.C.I.T. (104 ITD 166)(TM) that the general legal principle is well settled that a statement u/s.132(4) is not the last word and if the person concerned retracts/clarifies the same subsequently on ascertainment of correct state of affairs and explain the same, it can be allowed. The burden to prove that the statement was given under misunderstanding lies on him.

(x) The honourable Gujarat High Court held in the case of Kailashben Manharlal Chokshi vs. C.I.T. (174 Taxmann 466) that a statement recorded u/s.132(4) at midnight cannot be considered a voluntary statement if it is subsequently retracted by the assessee and necessary evidence is laid contrary to such admission.

(xi) The honourable Allahabad High Court held in the case of C.I.T. vs. Radhakishan Goyal (278 ITR 454) that it is a matter of common knowledge, which cannot be ignored that the search is being conducted with the complete team of the officers consisting of several officers with the police force. Usually telephone and all other connections are disconnected and all ingress and egress are blocked. During the course of search person is so tortured harassed and put to a mental agony that he loses his normal mental state of mind and at that stage it cannot be expected from a person to pre-empt the statement required to be given in law as a part of his defense.

(xii) The honourable Jaipur Bench of I.T.A.T. held in the case of Chandesh Kumar Maheshwari vs. A.C.I.T. (I.T.S.S.A.No.18/JP/ 1997) that ‘We have examined the facts and arguments put-forth by the learned A.R. and are of the opinion that an admission of fact made by a party is good evidence and may be decisive in the absence of evidence to the contrary. However, it is not a conclusive proof of the matter admitted. It is open to the assessee who made admission to show that it is incorrect. [Pullongode Rubber Produce Co. Pvt. Ltd. vs. State of Kerala (1971) 81 ITR 18 (SC)]. An admission made by the assessee before the Income-tax authorities is an important piece of evidence but he is entitled to show that such an admission was made out of ignorance of law or it has otherwise vitiated [G. Murugesan & Bros. Vs. C.I.T. (1973) 88 ITR 432 (SC)]. In other words, the statement u/s 132(4) made before the Incometax authorities is an important piece of evidence but it is not conclusive. It is rebuttable and the assessee can always show that it was incorrect. The addition cannot be made merely on the basis of admission made before the income-tax authorities. If the assessee produces evidences which proves his admission to be incorrect or contrary to the facts and such evidences remain uncontroverted, addition made in such case merely on the basis of admission of the assessee cannot be sustained. The surrounding circumstances and other relevant factors have to be considered before making an addition solely on the basis of admission. Reliance was placed in the case of C.I.T. vs. Bhanwarlal (225 ITR 870).’

19. The learned counsel for the assessee submitted that in his statement recorded u/s.132(4) on 04.11.2011, the assessee offered undisclosed income of Rs. 45 crores for taxation, subject to verification of the seized material. Subsequently, the assessee filed a letter before the Investigation Wing in which he admitted undisclosed income of Rs. 35 crores for various assessment years in his own case and Rs. 10 crores in the case of Signet Industries Ltd. for the assessment year 2012-13. In the said letter, copy of which is enclosed herewith as Annexure ‘C’, the assessee clearly identified the seized material relevant to undisclosed income offered for taxation and categorically stated that declaration of undisclosed income was based upon provisional verification of seized material. In this regard, attention of the honorable tribunal may be brought to the fact that over 30,000 pages were seized by the Income-tax department along with hard discs of all the computers. As per the impugned letter, undisclosed income of Rs. 12.61 crores for the assessment year 2012-13 was based on provisional verification of seized material viz. LPS-3, BS-1 to BS-3 (Residence of the assessee), Annexure A-2 (Mumbai office of Signet Industries Ltd.), LPS-1 and BS-3 (Residence of Paras Patidar), undisclosed sliverwares and unmatched diamond ornaments. To ascertain undisclosed income scientifically on a proper analysis of unaccounted cash transactions as per seized material, the assessee prepared a cash book in which all unaccounted cash receipts and unaccounted cash payments and investment were recorded datewise in a chronological order and on the basis thereof, the assessee ascertained the peak credit and offered the year-wise peak credit for taxation. The rationale behind applying peak credit theory is that the sum of all unexplained credit entries cannot be the assessee’s income when there are several unexplained debit entries also in the seized material and therefore, the effect of multiple credit and debit entries can be cancelled by arranging them in a chronological order, determine highest peak credit and bring such peak credit to tax as undisclosed income of the assessee. The copy of cash book was placed before the assessing officer, C.I.T.(A). as well as before the honourable I.T.A.T. On the basis of above scientific analysis of seized material, it was ascertained by the assessee that no undisclosed income was determinable in the assessment year 2012-13 because the undisclosed income determined in earlier assessment years and recovery of cash advanced in earlier period was sufficient for explaining cash payments and undisclosed investments during the assessment year 2012-13. Under these facts, no income was offered for taxation by the assessee during the year notwithstanding the fact that the assessee earlier offered undisclosed income of Rs. 12.61 Crores for assessment year 2012-13 in his letter filed before the Investigation Wing. The judgments relied upon by the first appellate authority while making addition of Rs. 9,43,55,415/- on the basis of assessee’s statement are not applicable to the facts of the assessee’s case in as much as in all the cases either the assessee claimed the statements having been given under threat or intimidation whereas it was a voluntary statement or retraction was filed after many years or no reasons were assigned for retraction or retraction was made despite existence of incriminating material. The facts of the assessee’s case are totally different. While offering undisclosed income for taxation, the assessee categorically stated that the declaration was on the basis of provisional verification of seized material. While filing return of income pursuant to notice u/s.153A, the assessee scientifically analysed the entire seized material as well as undisclosed investment and assets, worked out peak credit by datewise chronologically arranging unaccounted cash receipts and cash payments and offered the same for taxation as undisclosed income. No income was offered for taxation for assessment year 2012-13 because the undisclosed income determined in earlier assessment years and recovery of cash advanced in earlier period was sufficient for explaining cash payments and undisclosed investments during the year. In view of the facts and legal position discussed above, the assessee humbly request deletion of the addition sustained by the C.I.T.(A) and determine undisclosed income offered by the assessee on the basis of peak credits for various assessment years on the basis of cash book prepared by him and placed before the Tribunal as well as the lower authorities.

20. The learned CIT(A) has made the addition of difference between the income offered in the statement recorded u/s 132(4) and confirmed in the letter submitted to the Investigation Wing for the assessment year 2012-13. The peak credit in view of various issues decided in these appeals including appeal in Signet Industries Limited needs to be reworked out. The income worked out of poly product sold out of books and under-invoiced for assessment years 2006-07, 2007-08 and 2008-09 have been held to be taxed in the hands of Signet Industries instead of the assessee. Part of this income was offered by the assessee in his return of income for these years which shall be reduced in view of these facts. Further, various other issues are also restored to the file of the Assessing Officer. The Assessing Officer is also directed to rework out the peak. In view of these facts, this issue is also restored to the file of the Assessing Officer.

21. GROUND NO.4.0 (A.Y. : 2008-09) OF THE ASSESSEE’S APPEAL :

Ground No.4.0 (A.Y. : 2008-09)of assessee’s appeal reads as under :

ASSESSMENT YEAR : 2008-09

REJECTION OF ASSESSEE’S CLAIM FOR EXCLUSION / DEDUCTION / ALLOWANCES MADE IN THE RETURN OF INCOME FILED U/S.153A OF THE INCOME-TAX ACT, 1961

“The learned Commissioner of Income Tax (Appeals) erred in law as well as in facts in confirming the rejection of the assessee’s claim for the following exclusions/deductions/allowances by the assessing officer, which were made in the Return of Income filed u/s.153A of the Income-tax Act, 1961:”

S. No	Particulars	Amount Rs.
(a)	Exclusion of short term capital gain on sale of shares, which had already been offered for taxation by the assessee in assessment year 2007-08	29,471/-
(b)	Deduction of cost of acquisition of shares of Adroit Industries (India) Limited, in computing short capital gain on sale of shares	30,000/-
(c)	Deduction of bank charges	1,629/-
(d)	Deduction of interest, being difference in interest paid (Rs. 1,60,610/-) and interest claimed as deduction in the Return of Income (Rs. 1,60,160/-)	450/-

 22. The facts relating to this ground are that while filing the return pursuant to the notice issued u/s.153A the assessee claimed the following deductions:

S. No	Particulars	Amount Rs.
(a)	Exclusion of short term capital gain on sale of shares, which had already been offered for taxation by the assessee in assessment year 2007-08	29,471/-
(b)	Deduction of cost of acquisition of shares of Adroit Industries (India) Limited, in computing short capital gain on sale of shares	30,000/-
(c)	Deduction of bank charges	1,629/-
(d)	Deduction of interest, being difference in interest paid (Rs. 1,60,610/-) and interest claimed as deduction in the Return of Income (Rs. 1,60,160/-)	450/-

The said claim were not made while filing the return u/s.139(1)/139(4).

23. The contention of the A.O. is that the contention of the fresh claim of deductions of the assessee for the return filed u/s.153A is rejected as the assessee cannot make the fresh claim for deduction/exemption in proceedings initiated u/s.153A of the Act. If the assessee found any mistake in his original Return of Income, the correct course was to revise the return which has not been done.

24. The learned CIT(A) relying on the judgement of Jai Steel India vs. A.C.I.T. [36 taxman.com 523 (Raj)] and Charchit Agarwal vs. A.C.I.T. [34 SOT 348 (ITAT-Del)], the C.I.T.(A). held that where a claim for deduction/exemption was not made by the assessee in Return of Income filed under original return of income, no fresh deduction or claim can be made by the assessee in the Return of Income filed u/s.153A pursuant to a search u/s.132 or requisition u/s.132A because the proceedings u/s.153A are for the benefit of revenue and not for the benefit of the assessee.

25. Before us, the learned counsel for the assessee submitted that the claims/deductions made by the assessee while filing the Return of Income pursuant to notice u/s.153A were such claim/deductions which were legally allowable to the assessee. In fact, because of their very nature, the assessing officer should have allowed these deductions on his own and he should not have taken advantage of assessee’s ignorance. In this regard the reliance is place on the circular No.14(XL-35), dated April 11, 1955 issued by the Central Board of Direct Taxes, which reads as under :

(3) Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the department for it would inspire confidence in him that he may be sure of getting a square deal from the department. Although, therefore, the responsibility for claiming refunds and reliefs rests with assessee on whom it is imposed by law, officers should-

(a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other ;

(b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs.

 The honourable Bombay High Court held in the case of Sanchit Software and Solutions P. Ltd. vs. C.I.T. [2012] (349 ITR 404) as under :

In any civilized system, the assessee is bound to pay the tax which he liable under the law to the Government. The Government on the other hand is obliged to collect only that amount of tax which is legally payable by an assessee. The entire object of administration of tax is to secure the revenue for the development of the country and not to charge assessee more tax than that which is due and payable by the assessee. It is in aforesaid circumstances that as far back as in 11-4-1955 the Central Board of Direct Tax had issued a circular directing Assessing Officer not to take advantage of assessee’s ignorance and/or mistake. Therefore, the above Circular should always be borne in mind by the officers of the respondent – revenue while administering the said Act. [Para 5]

There was a fundamental error in the order of C.I.T. as it proceeds on the erroneous basis that the assessee had admittedly not claimed the benefit of sections 10(34) and 10(38) in respect of its dividend income and long term capital gains on sale of shares respectively in its return of income. In fact, in the return of income, the assessee had admittedly sought to exclude its dividend income and long term capital gains from sale of shares under section 1O as is evident from the return of income. However, in the return of income as filed originally on the assessee by mistake, omitted to exclude the dividend income and income from long term capital gains from the total income being declared by it. [Para 6]

The Honourable Madras High Court held in the case of C.I.T. vs. Geo Industries & Insecticides (I) (P.) Ltd. (234 ITR 541) as under :

“We are of the view that, when the assessee made a claim for consideration of an item for deduction during the course of assessment proceedings, it is the duty of the ITO to examine the claim on the merits of the claim. The present case is not a case where the assessee made a claim with reference to a matter which was concluded and has become final in the original assessment proceedings. But, on the other hand, it was found in the subsequent year’s assessment proceedings that the liability of the assessee had accrued when the suit for injunction filed by the assessee was dismissed by the city civil Court, Madras and in view of the subsequent event that the deduction might relate to the present assessment year, the assessee made a claim for deduction of the damages and when such a claim was made, the ITO was bound to examine the claim on merits and it is not open to him to reject the claim even at the threshold and refuse to entertain the claim. The zeal of the ITO to carry out the directions of the higher authority may be justified, but at the same time it should not prevent him from examining the claim of the assessee on merits. His duty to make an assessment does not begin and end with the carrying out the directions of the Commissioner of Income-tax and his duty is something more, that is, to determine the correct taxable income. We are of the opinion, nothing precludes the assessee from making a claim before the ITO at the time of finalization of the assessment proceedings and equally nothing prevents the ITO from examining the claim on merits of the matter. It is well to remember that the assessment was being redone by the ITO within four years from the date of the original assessment order and when he is on the process of the completion of the assessment, he is bound to consider each and every claim preferred by the assessee. Let us imagine a case of a concluded assessment and there are no pending assessment proceedings, but when the assessee makes a claim for deduction of losses, the ITO cannot refuse to entertain the claim and he may reject the claim on the parameters found in s. 154 of the Act. In the instant case, it is a stronger case for the assessee as the ITO was directed to determine the correct total income of the assessee according to law and during that proceedings when the assessee makes a claim, the ITO is bound to consider the claim of the assessee. We are of the opinion that, while considering such’ a claim, the question of fulfillment of the conditions for rectification is not a sine qua non and even the conditions to rectify the mistakes are not present, the ITO, in our opinion, should examine the claim of the assessee on merits of the case. The power of the ITO to make the assessment as observed by this Court in C.I.T. vs. Seth Manicklal Fomra (supra) is derived from the statutory provisions of s.143(3) of the Act. Though the Supreme Court in the case of Modi Industries Ltd. vs. C.I.T. (supra) has held that the jurisdiction of the ITO is derived from the order of the C.I.T., his jurisdiction to allow or disallow the carry forward losses of the defunct business would be derived from the order of the C.I.T., but in other respects and, for completing the assessment, his powers would be traceable to s. 143(3) of the Act. This Court in Faizunnissa Begam vs. Asstt. CED (supra) has indicated such an approach and it was held that in so far as other items not considered by the higher authorities are concerned, the power of the ITO to reassess the income would be traceable to the provisions of the statute. Therefore, the refusal of the ITO even to consider the claim of the assessee is not justifiable and we are of the opinion that both the C.I.T.(A) and the Tribunal were right in directing the ITO to consider the claim of the assessee on the merits of the matter. Though we are not agreeing with the view expressed by the Tribunal that the entire assessment order was set aside by the C.I.T., still the power of the ITO to consider the claim of the assessee is neither curtailed nor taken away by the order of the C.I.T. The ITO was bound to consider the claim of the assessee under s. 143(3) of the Act when he was in final process of assessment in the determination of total income of the assessee as the assessment pursuant to the directions of the C.I.T. has not reached the stage of finality. We find that the Central Board is more liberal in its approach and directed the ITO to consider the claim of statutory deduction even when the assessee has not made such a claim [Vide: Circular No. 14(XL-35) of 1955 dt. : 11th April, 1955 : Chokshi Metal Refinery vs. C.I.T. (1977) 107 ITR 63 (Guj) at page 71]. We are of the opinion, such an attitude of the ITO would instil confidence in the minds of the taxpayer that his income would be properly determined and he is not required to pay the tax, neither one paise more nor one paise less than what is correctly and rightly due in accordance with and under the provisions of the statute. In this view of the matter, we are of the opinion that the order of the Tribunal is sustainable in law, though for different reasons stated above”.

The honourable Allahabad High Court held in the case of Raj Rani Gulati Vs. C.I.T. Central Tilak,(2012) (346 ITR 543) as under :

“Needless to mention that proviso of section 112(1) was introduced with effect from 01.04.2000 by the Finance Act, 1999. In other words, it was introduced during the assessment year under consideration and assessee was not aware about latest ‘amendment introduced by the Finance Act, 1999 w.e.f. 01.04.2000. Though ignorance of law has no excuse, but it can be excused in tax matter as per the ratio laid down in the case of P. V. Devassy Vs. C.I.T., 84 ITR 502 (Ker). It is not expected that the Department shall take the advantage of assessee’s ignorance as per CB.D. T. Circular No.14 (XL· 35)1955 dated 11 April 1955. Even under the bonafide belief, the assessee has shown the long term capital gain at the rate of 20%, but it was expected from the A.O. to know the latest amendment. The mistake might have been corrected by passing an order under section 154 of the Act. In the case of C.I.T. Vs. Mahalaxmi Sugar Mills Co. Ltd. (1986) 160 ITR 920 (SC), it was observed that:

“There is a duty cast on the Income-tax Officer to apply the relevant provisions of the Indian Income-tax Act for the purpose of determining the true figure of the assessee’s taxable income and the consequential tax liability. Thus the assessee fails to claim the benefit of a set-off cannot relieve the Income-tax Officer of his duty to apply section 24 in an appropriate case. “

Similar view was taken by the honourable I.T.A.T. Indore in the case of Subhadra Devi Gupta vs. A.C.W.T. (WTA Nos.1 to 6/IND/2012 dt.28.06.2013).

26. In the wake of the above submissions, the learned counsel for the assessee prayed for allowing the legitimate claims/deductions of the assessee notwithstanding the fact that these claims were not made in the original Return of Income filed u/s.139(1) of the Act.

27. We have heard both the sides. We find that in the case of Mukesh Sangle HUF, IT(SS)A Nos. 94 & 95/Ind/2015 and others IT(SS) A. Nos. this Bench had taken the following view :-

21. The assessee has made fresh claim as stated in the earlier part of this para with regard to exclusion of short term capital gain on the sale of shares of 29,471, cost of acquisition of shares Rs. 30,000/-, deduction for bank charges Rs. 1629/- and deduction of interest difference of Rs. 450/-. We have held that while filing the return of income u/s 153A of the Act, the assessee cannot reduce the taxable income originally declared. A similar view we have taken in the case of Mukesh Sangla HUF. The relevant para is reproduced as under :-

“65. We have heard both the sides on this issue and also gone through the case law relied upon. While filing the return of income u/s 153A/153C of the Act some of these assessee have claimed deduction u/s 80C and 80D of the Act. No such claim was made while filing the return of income u/s 139(1)/139(4) of the Act. Since we have already allowed the appeal of the assessee on the ground of issue of recording satisfaction prior to issue of notice u/s 153C of the Act and also on the ground that no incriminating document was found and seized, therefore, there is no question of allowing such deduction to the assessee. Further we would also like to state that the provisions of section 153A/153C are not made for the benefit of the assessee. Return filed in response to notice u/s 153A/153C of the Act is not substitute of revised return for the claim of such benefits. Hon'ble Apex Court in the case of Goetze (India) Limited vs. CIT; 284 ITR 323 ruled out that a fresh claim before the Assessing Officer can be made only by filing a revised return and not otherwise. Therefore, whatever claim the assessee has not made while filing the return u/s 139(1)/139(4) of the Act, he cannot make fresh claim by filing the return u/s 153A/153C of the Act and reduce the taxable income originally declared. Such view has been upheld by the Hon'ble Rajasthan High Court in the case of Jai Steels (India) vs. ACIT (supra). Therefore, this ground of the assessee’s appeal stands dismissed.”

28. Keeping these facts in view, we dismiss this ground of appeal of the assessee.

Ground No.5.0 (A.Y. : 2008-09)of assessee’s appeal reads as under :

ASSESSMENT YEAR :2008-09

UNDISCLOSED INCOME FROM UNACCOUNTED SALES AND UNDER-INVOICING ASSESSED IN SIGNET INDUSTRIES LIMITED, INCLUDED IN THE ASSESSEE’S TOTAL INCOME : Rs. 1,60,00,000/-

“The learned Commissioner of Income-tax (Appeals) erred in law as well as in facts in confirming the income assessed by the assessing officer at Rs. 2,89,20,310/- ignoring the vital facts that :

(a) it included the additional income of Rs. 1,60,00,000/- voluntarily offered for taxation by the assessee on account of unaccounted sales and underinvoicing, which formed part of income from unaccounted sales and underinvoicing assessed at Rs. 2,13,04,252/- in the case of Signet Industries Ltd. and therefore, it should have been excluded from the assessed income of the assessee and

(b) that the same income cannot be taxed in the hands of two assessees.

29. The facts in brief are that during search, page no.129, 130, 132 to 137 and 254 of LPS-2/14 were seized from the office of the Signet Industries Ltd. These pages represented detailed working on the basis of which Shri Mukesh Sangla revised his return of income for A.Y. 2006-07 to A.Y. 2008-09 on the basis of documents found and seized during search by Central Excise Authorities. After search by Central Excise Authorities 06.12.2007, the assessee voluntarily offered undisclosed income of Rs. 4 crores on account of cash payments to Shri Deepak Kalani and Shri Pankaj Kalani, under-invoicing of sales of Logic Poly Products, a unit of Signet Industries Ltd. and unaccounted sales and paid applicable taxes thereon. The details of undisclosed income voluntarily offered for taxation by the assessee and taxes paid thereon are as under:

Asstt. Year	Undisclosed Income (Rs.)	Taxes (Rs.)
2006-07	45,00,000	20,86,755
2007-08	1,95,00,000	86,88,340
2008-09	1,60,00,000	65,49,450
	4,00,00,000	1,73,24,545

30. That the assessing officer issued notice u/s.148 of the Act and completed assessment u/s.143(3) accepting the returns voluntarily filed by the assessee.

31. That the contention of the A.O. can be summarized that the impugned income was related to Signet Industries Ltd. and the undisclosed income from payment made to Shri Pankaj Kalani and Shri Deepak Kalani, under-invoicing of sales of Logic Poly Products and unaccounted sales were brought to tax in the case of Signet Industries Ltd. That the same is taxable in the hands of Signet Industries Ltd. and not Shri Mukesh Sangla. Accordingly, following additions were made in Signet Industries Ltd.:

Asstt. Year	Payment to Kalani Brothers	Unaccounted Sales of Polymer Business	Under-invoicing of Polymer Business (*)	Total
2006-07	-	2,89,97,976	-	2,89,97,976
2007-08	2,95,00,000	1,75,60,798	1,34,65,988	6,05,26,786
2008-09	6,32,34,000	93,56,857	1,19,47,395	8,45,38,252
2009-10	4,01,35,000	-	-	-
2011-12	7,75,000	-	-	-
	13,36,44,000	5,59,15,631	2,54,13,383	21,49,73,014

* The A.O. wrongly assessed undisclosed income from underinvoicing in the assessment year 2006-07 and 2007-08 instead of assessment year 2007-08 and 2008-09 which was rectified by the C.I.T.(A). while disposing off the assessee’s appeal.

Without prejudice and alternatively, he also applied Sec.40A(3) by assuming that the purchases would have been made in cash or alternatively applied the proviso to Sec.69C by holding that unaccounted purchases were made in cash.

32. The contention of the C.I.T.(A) can be summarized that Logic Poly Products was a unit of Signet Industries Ltd. and therefore, under invoicing of sales as well as out of books sales of manufacture goods pertained to Signet Industries Ltd. and not to Shri Mukesh Sangla. Signet Industries Ltd. filed settlement petition before the honourable Customs and Central Excise Settlement Commission in which Signet Industries Ltd. admitted that the unaccounted transaction viz. under-invoicing of sales and outside book sales pertained to it and it agreed to pay excise duty of Rs. 69,58,009/-. The income should be assessed in the hands of right person only as held by the honourable Supreme Court in the case of C.I.T. vs. Atchaiah (218 ITR 239). On the facts, the right person was the Signet Industries Ltd. and not Shri Mukesh Sangla. The contention of the assessee that Shri Mukesh Sangla voluntarily declared the impugned income in his hands which was accepted by the Income-tax Department is of no consequence and is immaterial in view of the apex court judgment. As expenses relating to raw material and other overheads had been accounted for in the regular books of accounts of Signet Industries Ltd., the entire under-invoiced amount as well as out of book sales was income of Signet Industries Ltd. and the net profit rate cannot be applied. Accordingly,following additions on account of under invoicing and unaccounted sales were confirmed :

Asstt. Year	Unaccounted Sales of Polymer Business	Under-invoicing of Polymer Business	Total
2006-07	2,89,97,976		2,89,97,976
2007-08	1,75,60,798	1,34,65,988	3,10,26,786
2008-09	93,56,857	1,19,47,395	2,13,04,252
	5,59,15,631	2,54,13,383	8,13,29,014

The C.I.T.(A). telescoped cash paid to Pankaj Kalani and Deepak Kalani, unsecured loans from Lucky Commotrade Pvt. Ltd. and undisclosed income from under-invoicing and unaccounted sales. However, the undisclosed income of Rs. 2,89,97,976/- of assessment year 2006-07 which was available to the assessee for cash payment of Rs. 2,95,00,000/- to Pankaj Kalani and Deepak Kalani was not allowed to be telescoped. Accordingly the following additions were sustained :

Asstt. Year	Payment to Kalani Brothers confirmed by C.I.T.(A).	Unsecured loans from Lucky Commotrade Pvt. Ltd.	Undisclosed income from under-invoicing and unaccounted sales	Additions confirmed w.r.t. under invoicing and unaccounted sales
2006-07	-	-	2,89,97,976	2,89,97,976
2007-08	2,95,00,000	2,35,00,000	3,10,26,786	15,26,789
2008-09	6,32,40,000	4,20,99,000	2,13,04,252	-
2009-10	4,01,35,000	3,14,78,000	-	-
2011-12	7,75,000	2,50,00,000	-	-
	13,36,50,000	12,20,77,000	8,13,29,014	3,05,24,765

33. Before us, the learned counsel for the assessee submitted that page no. 129, 130, 132 to 137 and 254 of LPS-2/14 found and seized from the premises of Signet Industries Ltd. represented working on the basis of which the Returns of Income of Shri Mukesh Sangla for assessment years 2006-07 and 200708 were voluntarily revised after search by Central Excise Authorities and Return of Income for assessment year 2008-09 was filed. The undisclosed income emerging from these pages consisted of payment to Shri Deepak Kalani and Shri Pankaj Kalani, under invoicing of sales and unaccounted sales, which was offered for taxation by the assessee voluntarily in his Returns of Income and the same was assessed u/s.143(3) r.w. Sec.147. As these documents had been the subject matter of assessment proceedings in the assessee’s own case prior to search and considered by the A.O., there was nothing incriminating about them. As no proceedings were pending in relation to the subject assessment years and these assessments were non-abated or completed assessments, no addition could have been made in terms of Sec.153A of the Act in the absence of any incriminating material. Therefore, the undisclosed income emerging from the impugned working should have been considered in the case of the assessee and not Signet Industries Ltd. Moreover, the income on account of cash payment to Shri Deepak Kalani and Shri Pankaj Kalani alongwith, under-invoicing of sales and unaccounted sales had already been offered for taxation in the case of Shri Mukesh Sangla, the addition thereof in the case of Signet Industries Ltd. would amount to double addition and double taxation causing great injustice to the assessee.

34. Without prejudice to the above and alternatively, the learned counsel for the assessee submitted that if the honourable Tribunal confirms the addition on account of cash payment to Shri Pankaj Kalani and Shri Deepak Kalani, under-invoicing and unaccounted sales in the case of Signet Industries Ltd., we humbly request that the income voluntarily offered for taxation on this ground by Shri Mukesh Sangla in his Return of Income should be reduced to avoid double taxation and the benefit of taxes paid by him should be given in the case of Signet Industries Ltd.. In support of it, the reliance is placed upon the judgement of honorable Supreme Court in the case of Ashish Plastic Industries vs. A.C.I.T. (373 ITR 45)

1. The appellant-assessee is a registered firm engaged in the business of manufacture of PVC pipes of different varieties and sizes. Survey operations were conducted by the Income Tax authorities under Section 133A of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’) at the factory premises of the assessee on 23.09.1993. During the course of survey operations, the stock at the premises was physically verified by the survey party and total stock of the value of 16,92,420/- was found. Statement of both the partners were recorded under section 131 of the Act. In the said statement, it was admitted that the stock as per books was around Rs. 3 lakhs and the excess stock of Rs. 13,92,000/- was, accordingly, admitted. On this basis, the addition was made and the assessment order was passed by the assessing authority in respect of the assessment

2. Before the Commissioner (Appeals), the appellant assessee sought to explain this difference by alleging that up to 23.09.1993, sales of 32809 Kg. of finished products was made by one of the sister concern of the assessee, namely, M/s Ashish Agro Plast Private Limited, and the same was wrongly shown to be that of the assessee. On this plea taken by the assessee, in support of which some documents/materials were also filed, the Commissioner (Appeals) asked for remand report from the assessing authority. Before the assessing authority, the representatives of assessee were asked to produce the books of accounts of M/s Ashish Agro Plast Private Limited for the assessment years 1993-1994 and 1994-1995. It was found that the sales of the finished product of 32809 Kg. as shown in the sales register of the sister concern tallies with the impounded stock register. It was also found that the sales proceeds was received by the sister concern, namely M/s Ashish Agro Plast Private Limited through its bank account in Bank of Baroda, Dudheshwar Road Branch, Ahmedabad. The cheques received against those sales were cleared even prior to the date of survey. Notwithstanding the aforesaid finding which vindicated the stand of the assessee to the aforesaid extent, it was further found that the sale of 33682 Kg. of finished goods was nothing but unaccounted sales out of which 32809 Kg. sales was made to the aforesaid sister concern of the assessee. Taking into consideration this aspect, the Commissioner upheld the order of the assessing authority justifying the additions made on account of unaccounted production, sales and closing stock of finished products. This order has been upheld by the Income Tax Appellate Tribunal as well as the High Court. In fact, the High Court dismissed the appeal of the assessee preferred under Section 260A of the Act on the ground that no substantial question of law arose.

3. Normally, going by the aforesaid facts noted, the High Court may be correct in its observation that no substantial question of law arose. However, learned counsel for the appellant-assessee has brought to our notice a different aspect which was raised at the time of admission of the present special leave petition filed by the appellant. He drew our attention to orders dated 27.02.2004 which reads as under: -

“Leave granted limited to the question as to whether in respect of sales of 32,809 kg., which are shown in the stock register of M/s. Ashish Agro Plast Private Limited, there has been double taxation.”

4. It is clear from the above that leave was granted limited to the question as to whether the addition made on account of aforesaid sale would amount to double taxation. To put it differently, the submission of the learned counsel for the appellant is that on the aforesaid sales, which are found in the accounts of M/s Ashish Plastic Industries, the receipts are shown as income on which tax has been paid by M/s Ashish Agro Plast Private Limited.

5. During the hearing of this appeal, learned counsel submitted that he can bring satisfactory evidence in support of this plea. We are of the view that the order of the authorities below should be sustained but if the appellant is able to prove that tax on the income generated from the sale of the aforesaid 32809 Kg. of material has been paid by M/s Ashish Agro Plast Private Limited, benefit thereof should be extended to the appellant. For this purpose, therefore, we remand the case back to the assessing authority, who shall give an opportunity to the assessee to demonstrate as to whether the sister concern has already paid the tax on the aforesaid income from the aforesaid sales and if that is shown, to the extent tax is paid, benefit shall be accorded to the appellant.

6. The appeal stands disposed of.”

35. In view of the above, the learned counsel for the assessee prayed to reduce the income of Shri Mukesh Sangla for Asstt. Year 2006-07, 2007-08 & 2008-09 and give benefit of taxes paid by him in the case of Signet Industries Ltd.

36. We have heard both the sides. We have already decided this issue in the case of Signet Industries Limited wherein we have upheld the addition in the hands of Signet Industries Limited. The addition upheld in the hands of Signet Industries Ltd. on the basis that these unaccounted sales of poly product and under-invoicing of poly product were product of Logic Poly Products which is a unit of Signet Industries Ltd. Further Signet Industries Limited has filed settlement petition before the Customs & Central Excise Commission and admitted it as unaccounted transaction in its own hands. We have sustained the addition totaling to Rs. 8,13,29,014/- for three assessment years 200607, 2007-08 and 2008-09 in the hands of Signet Industries Limited. We have also directed that this amount may be reduced in case of Mukesh Sangla(assessee) , therefore, on this account we allow this grounds of assessee’s appeal.

37. GROUND NO.3.0 TO 3.4(A.Y. :2008-09 &2010-11), 2.0 TO 2.1 (A.YS. : 2011-12 & 2012-13) OF THE ASSESSEE’S APPEAL AND GROUND NO.1 (A.YS. : 2010-11 TO 2012-13) OF REVENUE’S APPEALS :

Ground No. 3.0 to 3.4 (A.Y. : 2008-09 &2010-11) and 2.0 to 2.1 (A.YS. : 2011-12 & 2012-13) of assessee’s appeal reads as under :

ASSESSMENT YEAR : 2008-09

ADDITION ON ACCOUNT OF LOSE PAPER FOUND AT RESIDENCE OF SHRI MUKESH SANGLA DURING THE SEARCH AND SEIZURE PROCEEDINGS: Rs. 21,96,498/-

3.0 The learned Commissioner of Income-tax (Appeals) erred in law as well in facts in confirming the addition of Rs. 21,96,498/- made by the assessing officer on the basis of page 17 of LPS-4 found and seized from his residence, notwithstanding the fact that :

(a) it did not pertain to the year under consideration and

(b) it was considered by the assessee in the year wise peak of cash as per the cash flow statement and offered for taxation.

ASSESSMENT YEAR : 2010-11

ADDITION ON THE BASIS OF ENTRIES OF CASH PAYMENT RECORDED IN THE MATERIAL FOUND AND SEIZED DURING SEARCH : Rs. 23,06,22,104/-

3.0 The learned Commissioner of Income-tax (Appeals) erred in facts as well as in law in partly confirming the addition to the extent of Rs. 23,06,22,104/- made by the assessing officer on the basis of entries of cash payments and cash receipts recorded in the material found and seized during search.

3.1 In doing so, he erred in law as well as in facts in :

(a) confirming the rejection of scientifically prepared date-wise cash book by the assessing officer and bringing higher of the sum of cash payment (Rs. 23,06,22,104/-) or sum of cash receipts (Rs. 8,17,35,166/-) as undisclosed income of the assessee,

(b) not considering the peak determined by the assessee on the basis of date wise recording of cash receipts and cash payments and offered for taxation, despite holding that both the receipts and the payments cannot be taxed and receipts were available for making payments, and

(c) confirming the action of the assessing officer in selectively overlooking entries recorded in the seized material [Page no.17 of LPS 4 (found and seized from the residence of Shri Mukesh Sangla) vis-à-vis backside of page no.28 Annexure 2/16 (found and seized from office premises at Dewas Naka), backside of Page No.5 of LPS 3 and Page No.17 and its backside of LPS 3] resulting in multiple additions

ADDITION ON THE BASIS OF PAGE 17 OF LPS-4 FOUND AND SEIZED FROM THE RESIDENCE OF SHRI MUKESH SANGLA DURING SEARCH: Rs. 22,18,01,800/-

3.2 The learned Commissioner of Income-tax (Appeals) erred in law as well as in facts in confirming the addition of Rs. 22,18,01,800/- made by the assessing officer on the basis of page 17 of LPS-4 found and seized from the assessee’s residence despite the fact that:

(a) it was considered by the assessee in the year-wise peak of cash as per the cash flow statement and offered for taxation,

(b) it was linked with backside of page no.28 of Annexure 2/16 found and seized from office premises at Dewas Naka,

(c) it resulted in double addition of Rs. 10,99,00,900/- and

(d) it resulted in overlooking profit of Rs. 1,20,99,100/- from sale of gold and its exclusion in determination of peak to be offered for taxation.

ADDITION ON THE BASIS OF PAGE 16 to 20 OF LPS-3 FOUND AND SEIZED FROM THE RESIDENCE OF SHRI MUKESH SANGLA DURING SEARCH : Rs. 68,28,304/-

3.3 The learned Commissioner of Income-tax (Appeals) erred in law as well as in facts in confirming the addition of Rs. 68,20,304/- made by the assessing officer on the basis of page 16 to 20 of LPS-3 found and seized from the assessee’s residence despite the fact that :

(a) the transactions recorded therein were considered by the assessee while computing the year wise peak of cash as per the cash flow statement and offered for taxation

(c) some of the cash entries appearing on Page No.17 and its back of LPS 3 and back side of Page no.5 of LPS 3 were duplicate entries and should have been eliminated.

(c) Rs. 15,00,000/- paid for registration charges of land in Pithampur, which was duly recorded in books of accounts of Signet Industries Limited should not have been considered in determination of undisclosed income of the assessee.

CASH RECEIPTS RECORDED IN THE MATERIAL FOUND AND SEIZED DURING SEARCH AS UNEXPLAINED CASH RECEIPTS : Rs. 8,17,35,166/-

3.4 The learned Commissioner of Income-tax (Appeals) erred in law as well as in facts in confirming the addition of Rs. 8,17,35,166/-, although set off against sum of all the cash payments, made by the assessing officer as unexplained cash receipts, as per LPS 4 found and seized during search.

ASSESSMENT YEAR : 2011-12

ADDITION ON THE BASIS OF ENTRIES OF CASH PAYMENT RECORDED IN THE MATERIAL FOUND AND SEIZED DURING SEARCH : Rs. 14,27,33,397 /-

2.0 The learned Commissioner of Income-tax (Appeals) erred in facts as well as in law in partly confirming the addition to the extent of Rs. 14,27,33,397/- made by the assessing officer on the basis of entries of cash payments and cash receipts recorded in LPS 3 & LPS 4 found and seized during search.

2.1 In doing so, he erred in law as well as in facts in :

(a) confirming the rejection of scientifically prepared date-wise cash book by the assessing officer and bringing higher of the sum of cash payment (Rs. 14,27,33,397/-) or sum of cash receipts (Rs. 9,12,86,409/-) as undisclosed income of the assessee,

(b) not considering the peak determined by the assessee on the basis of date wise recording of cash receipts and cash payments and offered for taxation, despite holding that both the receipts and the payments cannot be taxed and receipts were available for making payments, and

(c) confirming the action of the assessing officer in selectively overlooking entries recorded in the seized material resulting in multiple additions

CASH RECEIPTS RECORDED IN THE MATERIAL FOUND AND SEIZED DURING SEARCH AS UNEXPLAINED CASH RECEIPTS : Rs. 9,12,86,409/-

2.2 The learned Commissioner of Income-tax (Appeals) erred in law as well as in facts in confirming the addition of Rs. 9,12,86,409/-, although set off against sum of all the cash payments, made by the assessing officer as unexplained cash receipts as per LPS 3 and LPS 4 found and seized during search.

ASSESSMENT YEAR : 2012-13

ADDITION ON THE BASIS OF ENTRIES OF CASH PAYMENT RECORDED IN THE MATERIAL FOUND AND SEIZED DURING SEARCH : Rs. 90,39,800/-

2.0 The learned Commissioner of Income-tax (Appeals) erred in facts as well as in law in partly confirming the addition to the extent of Rs. 90,39,300/- (sic Rs. 90,39,800/) made by the assessing officer on the basis of entries of cash payments and cash receipts recorded in LPS 3 found and seized during search.

2.1 In doing so, he erred in law as well as in facts in :

(a) confirming the rejection of scientifically prepared date-wise cash book by the assessing officer and bringing higher of the sum of cash payment (Rs. 90,39,800/-) or sum of cash receipts (Rs. 38,52,470/-) as undisclosed income of the assessee,

(b) not considering the peak determined by the assessee on the basis of date wise recording of cash receipts and cash payments and offered for taxation, despite holding that both the receipts and the payments cannot be taxed and receipts were available for making payments, and

(c) confirming the action of the assessing officer in selectively overlooking entries recorded in the seized material resulting in multiple additions

CASH RECEIPTS RECORDED IN THE MATERIAL FOUND AND SEIZED DURING SEARCH AS UNEXPLAINED CASH RECEIPTS : Rs. 38,52,470/-

2.2 The learned Commissioner of Income-tax (Appeals) erred in law as well as in facts in confirming the addition of Rs. 38,52,470/-, although set off against sum of all the cash payments, made by the assessing officer as unexplained cash receipts as per LPS 3 found and seized during search.

7.0 Ground No.1 (A.Ys. : 2010-11 to 2012-13) of revenue’s appeals reads as under:

ASSESSMENT YEAR : 2010-11

1. On the facts and in the circumstances of the case the C.I.T.(A). erred in deleting the addition made on account of unexplained cash transaction of Rs. 8,17,35,166/-.

ASSESSMENT YEAR : 2011-12

1. On the facts and in the circumstances of the case the C.I.T.(A). erred in deleting the addition made on account of unexplained cash transaction of Rs. 9,12,86,409/-.

ASSESSMENT YEAR : 2012-13

1. On the facts and in the circumstances of the case the C.I.T.(A). erred in deleting the addition made on account of unexplained cash transaction of Rs. 38,52,970/-.

38. The facts, in brief, are that during search, Annexure LPS 1 to 4 and BS 1- 5 were found and seized from the residence of Shri Mukesh Sangla at 1-B, Gulmohar Extension, Indore. Some of the loose papers forming part of the impugned annexures showed unaccounted cash receipts, unaccounted cash payments, unaccounted polymer trading, unaccounted purchase and sale of gold, etc. The name like Mukesh Sangla, HH Sangla Sir, etc. were inscribed on many of these loose papers. In terms of presumption u/s.132(4A) and sec.292C of the act read with statement of the assessee recorded u/s.132(4), the income emerging from impugned pages was rightly offered in the case of Shri Mukesh Sangla. As the impugned seized material showed a large number of unaccounted cash payments and unaccounted cash receipts, the assessee arranged them in chronological order, determined peak credit every year and offered the same for taxation as his undisclosed income, the details of which are as follows:

Asstt. Year	Undisclosed income	Remark
2006-07	45,00,000	Revised return voluntarily filed after Central Excise search
2007-08	1,95,00,000
2008-09	1,60,00,000
2009-10	38,00,000	Peak credit
2010-11	11,01,00,000 1,20,99,100	Peak credit STGC on sale of gold
2011-12	50,626	Net profit from trading in Polymer
2012-13	21,51,057
	16,82,00,783

While recording unaccounted cash transactions, the assessee eliminated the duplicate entries to avoid double taxation.

39. The A.O. rejected the cash book prepared by the assessee to ascertain peak credit and undisclosed income because the assessee failed to explain – the true nature and source of such receipts, the nature and purpose of payments made, identity of persons whose names were appearing in the loose papers and undisclosed income could not be earned on the very first day of the year. Accordingly, he proceeded to add all cash payments and cash receipts as undisclosed income of either the assessee or Signet Industries Ltd.. While the cash receipts were added u/s.68, the cash payments were added u/s.69C of the Act. He made the following additions:

Asstt Year	Undisclosed Income	Remark
2008-09	21,96,498	-
2009-10	14,00,000	On protective basis in Shri Mukesh Sangla and on substantive basis in Signet Industries Ltd.
2010-11	8,37,35,166	On protective basis in Shri Mukesh Sangla and on substantive basis in Signet Industries Ltd.
	22,86,22,104
	31,23,57,270	Total
2011-12	9,89,26,409	On protective basis in Shri Mukesh Sangla and on substantive basis in Signet Industries Ltd
	13,50,93,397
	23,40,19,806	Total
2012-13	1,28,92,270

40. The A.O. partly considered the cash transaction in case of Shri Mukesh Sangla and partly in case of Signet Industries Ltd. The A.O rejected the assessee’s submission in relation to elimination of duplicate entries for avoiding double taxation. The A.O. also ignored unaccounted transactions regarding purchase and sale of gold.

41. On appeal, the learned CIT(A) observed that on the basis of facts like seized material being found at the residential premises of Shri Mukesh Sangla at 1-B, Gulmohar Extension, Indore, many loose papers of the seized material bearing the name of Shri Mukesh Sangla, statement of Shri Mukesh Sangla u/s.132(4) and presumption u/s.132(4A) and section 292C, the C.I.T.(A) held that the right person to be taxed in respect of undisclosed income emerging from the impugned seized material particularly LPS-3 and LPS-4 is Shri Mukesh Sangla and not Signet Industries Ltd. He relied upon the Apex Court judgement in the case of C.I.T. Vs. Atchiah (218 ITR 239).

42. The learned CIT(A) also observed that both receipts and payments cannot be taxed because once the receipts are treated as income, the same is available for making payments. Therefore, in the year in which receipts exceeded payments, the receipts should be taxed and in the year where payments exceeded the receipts, the payments should be taxed. The underlying principle is that the higher of the two should be brought to tax and not the sum of all receipts and payments. Accordingly, the following additions were sustained:

Asstt Year	Unexplained Payments	Unexplained Receipts	Additions Confirmed (Higher of the receipts or payments)	Relief given by the C.I.T.(A).
2008-09	21,96,498	-	21,96,498	-
2009-10	14,00,000	-	14,00,000	-
2010-11	23,06,22,104	8,17,35,166	23,06,22,104	8,17,35,166
2011-12	14,27,33,397	9,12,86,409	14,27,33,397	9,12,86,409
2012-13	90,39,800	38,52,470	90,39,800	38,52,470

43. Before us, the learned counsel for the assessee submitted that on perusal of material (Annexure LPS 1 to 4 and BS 1-5) found and seized from the residence of Shri Mukesh Sangla, the key person and head of Signet Group, a part of which have also been reproduced in the assessment order, it emerged that the impugned material contained transactions like receipts from various sources, payments to various persons, purchase and sale of gold, unaccounted trading in polymer, etc. Shri Mukesh Sangla offered these undisclosed income emerging from these loose papers for taxation in his personal hands and not in the case of Signet Industries Ltd. on account of following reasons:

(a) The seized material was recovered from the residential premises of Shri Mukesh Sangla at 1-B, Gulmohar Extension, Indore;

(b) Many loose papers of the seized material bearing the name of Shri Mukesh Sangla;

(c) Shri Mukesh Sangla categorically admitted in his statement recorded u/s.132(4) that these loose papers were related to his unaccounted polymer trading business and various names appearing therein were used for camouflaging real transactions.

(d) The polymer trading business was carried out by Shri Mukesh Sangla in his personal capacity;

(e) The presumption in terms of Sec.132(4A) and Sec.292C of the Act clearly necessitated taxation of undisclosed income in the hands of Shri Mukesh Sangla.

(f) In view of the Supreme Court judgement in the case of C.I.T. Vs. Atchiah (218 ITR 239), the right person to be taxed in respect of undisclosed income emerging from the impugned seized material particularly LPS-3 and LPS-4 is Shri Mukesh Sangla and not Signet Industries Ltd.

44. The learned counsel for the assessee further submitted that as there were a large number of cash receipts and cash payments, investment, trading in polymers etc., it was not possible to determine correct undisclosed income merely by addition of all payments and receipts, an approach adopted by the A.O. in the assessment order, which has been over-ruled by the C.I.T.(A). After examination of transactions recorded in the cash book, the first appellate authority allowed telescoping of cash receipts against cash payments albeit on yearly basis and taxation of the higher of the two in each assessment year. The learned counsel for the assessee submitted that on going through the seized material and material collected during search and post search proceedings, it was found that the payments were made to some parties, cash was received from some parties and in some cases, cash was recovered from the persons to whom it was given earlier. Considering their very nature, these transactions were recorded date wise chronologically in a cash book and year-wise peak was worked out and offered for taxation by the assessee in his Return of Income filed pursuant to the notice issued u/s.153A. The determination of year-wise peak was the only basis to logically determine correct undisclosed income on the basis of seized material. Each and every transaction of cash received and paid, as appearing in the names of various persons, were taken into account in the said cash book for ascertaining peak credit. The method of ascertaining peak credit was quite scientific and not as per sweet wishes of the assessee. The modus operandi of determination of undisclosed income was explained to the assessing officer, it was verified with reference to the seized material. The A.O. did not raise any query during its verification and failed to bring a single error in working of peak credit which was offered for taxation by the assessee in his Returns of Income.

45. It was submitted by the learned counsel for the assessee that various contentions of the assessing officer like (a) the assessee gave a brief and cryptic reply that all the transactions on these loose papers were related to personal unaccounted business of Shri Mukesh Sangla camouflaged in the name of various persons, (b) the assessee neither explained the method of working of the peak nor filed any basis thereof, (c) the assessee has not correlated various debit and credit entries and has worked out the peak according to his sweet wish, (d) the assessee has prepared a cash book for the period from 01.04.2008 to 31.03.2012 and simply stated the amount received /paid from/to various persons, (e) the assessee has not explained the various transactions mentioned in the name of various persons such as Ganpaty, Mahavir Chemical, Globe Pharma, Ghambir Ji, Ashok Khasgiwala, Mehta Ji and so on, (f) Mukesh Sangla has simply prepared the cash book without preparing the ledger accounts, (g) no narration of transactions, (h) no evidence regarding cash sent to various persons and recalled and confirmation from them, (i) nature of income was not described, (j) income could not be earned on the very first day, etc., it is submitted that once the addition was made on account of cash receipts and payments and other entries recorded in the seized material and each and every transaction was considered for determination of undisclosed income by the assessee in a logical and scientific manner, the identity of person and confirmation, nature and purpose of transaction, narration of transactions, evidence regarding cash paid and cash received etc. lost their relevance, particularly when the assessee categorically stated that the names appearing in the loose paper were mere camouflage. He also submitted that the statements of various persons like Shyam Gupta, S.S.Mehta, Sikkaji, Umeshji etc. were recorded by the Investigation Wing during post search proceedings and they confirmed the factum of cash receipt from Shri Mukesh Sangla for safe custody and payment thereof as and when recalled by him from time to time. The learned counsel for the assessee submitted that when a large number of unaccounted transactions in the form of cash receipts and cash payments, recall of cash advance, unaccounted trading in Polymer etc. were recorded in the seized material, the undisclosed income could be determined only on the basis of peak credit. The rationale behind applying peak credit theory is that the sum of all unexplained credit entries cannot be the assessee’s income when there are several unexplained debit entries also in the seized material and therefore, the effect of multiple credit and debit entries should be cancelled to avoid multiple additions by arranging them in a chronological order, determine highest peak credit and bring such peak credit to tax as undisclosed income of the assessee. In fact, the peak credit was nothing but highest negative cash balance on a particular day of the year. The learned counsel for the assessee also submitted that the assessing officer could not have rejected the peak credit worked out by the assessee without bringing any material on record to show that the unexplained payments were not available with the assessee for re-introduction. The learned counsel for the assessee submitted that the basis of preparing cash book was explained to the assessing officer and each and every transaction was verified by him with respect to the seized material. Therefore, finding of the A.O. that there were no basis for preparing cash book is absolutely incorrect and contrary to the facts. Had the A.O. demanded ledger accounts, the assessee could have given them instantly because the cash book was prepared from accounting software ‘Tally’ wherein the ledger accounts are generated automatically. He submitted that there is nothing under the Income-tax Act, 1961 which prevents an assessee from offering undisclosed income, determined in a scientific manner, for taxation on the first day of the assessment year. Shri Mukesh Sangla offered the peak credit as his undisclosed income and introduced such undisclosed income in the cash book on the very first day of the year so as to verify the peak credit determined by him and availability of cash throughout the year. As regard contention of the assessing officer that “Further, in the absence of any explanation and in the absence of any supporting documents, various other receipts and payments in the names of different person cannot be accepted as per the assessee’s version. In respect of transaction with Shri Ashok Khasgiwala, Shri Mukesh Sangla has shown that he has purchased gold on 01.04.2008 for Rs. 21,96,498/- and again on 01.07.2009 for Rs. 10.77 crores. The assessee has further claimed that the said gold was sold on 31.01.2010 for Rs. 12.20 crores and has stated that an amount of Rs. 1.21 corers has been offered by him as short term capital gain on sale of gold in the return filed u/s 153A for AY - 2010-11. The assessee has not filed any details of the persons to whom gold was sold in such huge quantity. Further the assessee has not explained the purchase of gold from Shri Ashok Khasgiwala nor has filed any confirmation to this effect. In these circumstances the transactions cannot be accepted as tried to be explained by the assessee; As per the cash book prepared by Shri Mukesh Sangla, he carried a huge cash of more than Rs. 11 corers from 01.04.2009 till 30.06.2009 and again cash balance of more than Rs. 12 corers from 31.01.2010 till mid of 2010. In the mid of 2010 Shri Mukesh Sangla has shown huge purchase of gold starting from April 2010 from one Mr. Kuldeep ji. These purchases continued till June 2010 even after which Shri Mukesh Sangla carried cash in hand of more than Rs. 5 corers till May 2011. These facts prove beyond doubt that the cash book prepared by Shri Mukesh Sangla is without any basis as no prudent person will carry such huge cash balance for such a long period,” it is submitted that in the assessee’s case, the undisclosed income was assessed on the basis of transactions recorded in the seized material. From the assessment order, it is quite manifest that the assessing officer considered all these transactions as representing assessee’s undisclosed income and brought them to tax either u/s.68 or u/s.69 of the Income-tax Act,1961. Having made the entries in the seized material as the basis of determining undisclosed income, the assessing officer could not be permitted to take a ‘U’ turn and contend at the same time that a part of its contents were not acceptable to him on the ground of prudence, impracticability, non-filing of confirmation by various persons, non-verification etc. He had to accept the contents of the seized material as it is – whether it was huge cash balance or purchase and sale of gold or receipts and payment in various names. He could not blow hot and cold at the same time. He cannot adopt a ‘pick and choose’ approach. The learned counsel for the assessee submitted that moreover, there was no sincere endeavor on the part of the assessing officer or the investigation wing to seek details from the assessee about various names, contents of the seized material etc. or make necessary enquiries from the persons whose names appeared in the seized material. In fact the statement of the assessee was never recorded by the Investigation Wing after 04.11.2011 i.e. the date of conclusion of search or by the A.O. during entire assessment proceedings which continued for over six months. The revenue is not permitted to blame the assessee for its own failure and ineptness. Therefore, contentions of the assessing officer as stated above were quite irrelevant in determination of undisclosed income of the assessee. The learned counsel for the assessee invited our attention to page no. 17 on which cash transactions under the account Shri Ashok Khasgiwala are recorded and backside of page no. 28 of Annexure 2/16 found and seized from the assessee’s office premises at Dewas Naka, Indore are interlinked as manifest from the following extract:

Page no. 17 of LPS-4

	Opening Balance	10,99,00,900/-
	--------
31.07.2009	Misc. expenses	10,99,00,900/-

Backside of page no. 28 of LPS-2/16

31.07.2009	Ashok Khasgiwala A/c	10.99 Cr
	Misc. Exp. Gold
31.01.2010	Sale “G”	12.20

46. The learned counsel for the assessee submitted that The entries on page no.17 of LPS-4 showed that opening balance in the account of Shri Ashok Khasgiwala was Rs. 10,99,00,900/-. The said balance was utilized for purchase of gold which is evident from entry dt.31.07.2009 on page 17 and entries recorded on the backside of page no. 28 of Annexure LPS-2/16. The impugned gold was sold on 31.01.2010 for Rs. 12.20 i.e. 12.20 Cr. On the basis of these entries, the Assessing Officer should have made addition of Rs. 10,99,00,900/- for investment in gold and not Rs. 21,98,01,800/- made as per the assessment order. By ignoring the entries relating to purchase and sale of gold as per the seized material as stated above, showed that the A.O. adopted a pick and choose approach by selecting a few entries for the purpose of making addition and ignoring a few entries which resulted in double addition. As the above mistake is quite obvious on the face of the seized material, we humbly request your honour to reduce the addition on account of page no.17 to Rs. 10,99,00,900/- while determining peak credit. It may be noted that the assessee offered additional income of Rs. 11,00,00,000/- on account of impugned payment appearing under the account in the name of Ashok Khasgiwala and also profit on sale of gold of Rs. 1,20,99,100/- for the Assessment Year 2010-11. He submitted that moreover, on perusal of entries recorded on backside of page no. 5 of LPS-3 and page no. 17/2 of LPS-3, it was found that the following payments appearing on backside of page no. 5 of LPS 3 were also appearing on page no.17/2 of LPS 3. It is evident from the following transactions:

Back side of Page no.5 of LPS 3			Page no.17/2 of LPS 3
Date	Name of person	Amount (Rs.)	Date	Name of person	Amount (Rs.)
06.08.2010	Misc. Exp.	26,000	06.08.2010	Misc. Exp.	26,000
07.08.2010	Sun City – Delhi	10,00,000	07.08.2010	Sun City – Delhi	10,00,000
09.08.2010	Sikkaji	1,30,000	09.08.2010	Sikkaji	1,30,000
09.08.2010	Kalaji	24,900	09.08.2010	Kalaji	24,900
09.08.2010	Mohan Sharmaji	10,000	09.08.2010	Mohan Sharmaji	10,000
28.08.2010	Ajay Mehta	15,000	28.08.2010	Ajay Mehta	15,000
31.08.2010	Umeshji	9,000	31.08.2010	Umeshji	9,000

47. While making addition on account of page no.5 of LPS 3, the Assessing Officer did not reduce the duplicate payment which resulted in double addition.

40. He further submitted that on perusal page no.5/2 of LPS-3, a payment of Rs. 15,00,000/- was recorded on 10.08.2010 with the narration ‘Pithampur Plot Regd’. The impugned payment of stamp duty for registration of plot of Signet Industries Ltd. was out of its regular cash withdrawal and recorded in the cash book of Signet Industries Ltd. The relevant extract was produced before the A.O. and the C.I.T.(A). As regard addition of cash receipts u/s.68 as unexplained cash credit and addition of cash payments u/s.69C as unexplained expenditure by the assessing officer, the learned counsel for the assessee submitted that all the credit entries and debit entries were considered by the assessee in the cash book provided to the Assessing Officer which was verified by him with the seized material. He did not bring any material on record to show that the cash receipts were not considered by him for the purposes of determination of peak credit and consequently, not offered for taxation as his undisclosed income. Further, Sec.68 is applicable to entries recorded in the assessee’s regularly maintained books of accounts as defined u/s.2(12A) and not credits appearing in the loose papers forming part of the seized material because such loose papers are not books of accounts within the meaning of Sec.2(12A) of the Income-tax Act, 1961. [(Sheraton Apparels vs. C.I.T. 123 Taxman 238 (Bom)] [(CBI vs. V.C Shukla 1998 AIR SC 1406)]. Therefore, addition of sum of all credit entries u/s.68, without taking into account the debit entries, amounted to multiple addition and incorrect determination of undisclosed income. The learned counsel for the assessee submitted that Sec.69C has no application where the assessee did not claim deduction of cash payments as expenditure and no material was brought on record by the assessing officer to show that the cash payments were towards any expenditure or he claimed any deduction thereof in determination of his undisclosed income [C.I.T. Vs. Hariram Bhambhani I.T.A. No.313 of 2013 dt. 04.02.2015 (Bom), C.I.T. Vs. Anil Bhalla 322 ITR 191 (Delhi)]. The learned counsel for the assessee submitted that From the above facts discussed above in the light of seized material, it is quite manifest that

(a) considering nature of transaction i.e. unaccounted cash payment and unaccounted cash receipt, the preparation of cash book and determination of yearly peak credit on the basis of day-to-day cash transactions was the most appropriate method of determining undisclosed income,

(b) the methodology adopted by the assessing officer by making addition of all cash receipts u/s.68 and all cash payments u/s.69C resulted in multiple addition and incorrect determination of undisclosed income and

(c) the methodology adopted by the C.I.T.(A). by partly allowing telescoping on yearly basis and bringing higher of the yearly sum of the receipt or payments to tax was erroneous inasmuch as he should have determined undisclosed income on the basis of peak credit by arrangement of unaccounted transactions datewise in a chronological order.

48. The learned counsel for the assessee submitted that it is a settled law that the undisclosed income declared by the assessee and assessed by the lower authorities or intangible additions made by lower authorities is always available to the assessee for set off against undisclosed investments/expenses etc. In the assessee’s case, having assessed the yearly peak amount as his undisclosed income, the assessing officer cannot take a stand that such income did not exist and therefore, not available with the assessee for set off against undisclosed cash, investment, loans and advances, expenses, jewellery etc. In this regard, we rely upon the following judgements:

 (a) S. KUPPUSWAMI MUDALIAR VS. C.I.T. [51 ITR 757 (MAD)]

Additions are no doubt made very often on estimate basis. But it can never be said, or at any rate the department cannot contend, that the amount of the addition is not the real income but something which the assessee may not have earned. It is wholly illogical for the department to contend that the addition was only for purposes of taxation and that it should never be taken as true income of the assessee..

In coming to the above conclusion, the honourable high court relied upon the following observation of honourable A.P. high court in the case of Lagadapati Subba Ramaiah v. Commissioner of Income-tax [1956] 30 ITR 593

“In the present case, it is somewhat difficult to say that there were no profits of the company out of which a dividend could have been paid. When the revenue authority levied a tax of Rs. 62,000 on the company, it proceeded on the basis that the books of the company which showed a total income of only Rs. 34,532 for all the four years of its existence were unreliable and that the bulk of the company’s profits had been kept outside its books. Now those secret profits less the income-tax paid, therefore, would be available with the company for distribution as dividends. Once the secret profits had been assessed to tax, it would have been open to the company to bring those profits into the books and distribute them, or what remained after payment of tax, as dividends.... Having assessed the company on a large sum as its undisclosed income, it cannot, at the same breath, say that these profits did not in fact exist because they did not appear from the company’s books and could not, therefore, have been available for the payment of dividends. Among common men, such an attitude would be regarded as blowing hot and cold or playing fast and loose.”

 (b) ANANTHARAM VEERASINGHAIAH & CO. VS. C.I.T. [123 ITR 457 (SC)]

In the instant case, the Tribunal had relied entirely on the basis that an intangible addition of Rs. 2,00,000 had been made to the book profits of the assessee for the assessment year 1957-58 and it inferred that an amount of Rs. 90,000 was available for being put to use in the relevant assessment year. Now it can hardly be denied that when an ‘intangible’ addition is made to the book profits during an assessment proceeding, it is on the basis that the amount represented by that addition constitutes the undisclosed income of the assessee. That income, although commonly described as ‘intangible’, is as much a part of his real income as that disclosed by his account books. It has the same concrete existence. It could be available to the assessee as the book profits could be.

There can be no escape from the proposition that the secret profits or undisclosed income of an assessee earned in an earlier assessment year may constitute a fund, even though concealed, from which the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books....

C.I.T. VS. PREM CHAND JAIN [189 ITR 320 (P&H)]

In view of the decisions in C.I.T. v. Ram Sanehi Gian Chand [1972] 86 ITR 724 and Anantharam Veerasinghaiah & Co. v. C.I.T. [1980] 123 ITR 457 the Tribunal was right in holding that the past intangible additions made in the case of the firm of which the assessee was a partner and allocated to the assessee’s share could be taken into account in considering the unexplained investments of the assessee and these would also be available for set off purposes in respect of the agreed additions for low household expenses made in the assessee’s income in the year under consideration and in remitting the matter to the AAC.

 (c) C.I.T. VS. TYARYAMAL BALCHAND [165 ITR 453(Raj)]

In the present case, the ITO was within his right to tax the amount of Rs. 16,950 as income from undisclosed sources even though he had added the amount of Rs. 18,117 in addition to the profits shown by the assesses in its account books.

However, the assessee was well within its right to plead that the amount of Rs. 16,950 was covered from the intangible income assessed at Rs. 18,117, and added in the income of the assessee and apart from this, since for the last preceding 3 years, substantial additions amounting to Rs. 32,797 had been added, the amount of Rs. 16,950 could have been taken as having come out of such intangible additions. Accordingly, the Tribunal in the instant case was right in treating the unexplained cash credit entries to the extent of Rs. 16,950 as covered by added gross profit in the sum of Rs. 18,117 on the basis of the estimate.

 (d) C.I.T. VS. JAWANMAL GEMAJI GANDHI [151 ITR 353 (BOM)]

The Supreme Court has clearly stated in the case of Anantharam Veerasinghaiah & Co. vs. C.I.T. [123 ITR 457 (SC)] that the secret profits or undisclosed income of an assessee earned in an earlier assessment year can constitute a fund, though concealed, from which the assessee may draw subsequently.

 (e) C.I.T. VS. SAHU BROTHERS [115 ITR 438 (M.P.)]

A Division Bench of this court in that decision held that the additions by the ITO in the assessments of the previous years of the assessee were on the basis that he had earned larger income than what was shown and that he had in fact earned that income. That amount was, therefore, available to him for investment in the assessment year. A similar question was considered by the Allahabad High Court in the decision in C.I.T. v. Ram Achal Ram Sewak [1969] 73 ITR 501 and it was held (page 502):

“The short question raised in the present applications is whether the deposits made by the assessee in various banks from year to year could be set off against the extra profit added during previous years. In Kuppuswami Mudaliar v. C.I.T. [1964] 51 ITR 757 , it was held by the Madras High Court that, where the income-tax authorities made an addition to the income of the assessee over and above the income as disclosed by the assessee, on an estimate basis, the amount so added must be treated as the real income of the assessee. It is not open to the authorities to take the view that the addition was only for purposes of taxation, and that it should not be regarded as the true income of the assessee.”

Apparently, therefore, it could not be contended that this income which had been added up as income from intangible sources in the previous years, of assessment was not available to the assessee. Accordingly, our answer to the question is in the affirmative.

 (f) A.C.I.T. Vs. Dharamchand Agrawal [144 ITR 143 (M.P.)]

The honourable high court followed the honourable Supreme Court ruling in case of Anantharam Veerasinghaiah & Co. vs. C.I.T. [123 ITR 457 (SC)] and approved the telescoping of undisclosed income against undisclosed assets.

 (g) C.I.T. Vs. Nabadwip Chandra Dey [198 ITR 133 (GAU.)]

The principles governing set off of intangible additions made in the assessment against unexplained cash credits or unexplained investments are no more res integra.

The principles that emerge from the various decisions can be summarized as follows:

(1) Amounts represented by ‘intangible additions’ to the book profits of an assessee during an assessment proceeding constitute undisclosed income of the assessee and are as much a part of his real income as those disclosed by his account books. It has the same concrete existence.

(2) Income from intangible additions is available to the assessee for meeting expenditure or introducing amounts in his account books.

(3) If any unexplained cash deposit or cash credit can reasonably be related to the amount covered by the intangible additions made in the past or in that very year necessary set off may be given by the authorities on that account.

(4) In each case, the true nature of the cash deficit or cash credit must be ascertained from an overall consideration of the particular facts and circumstances of the case.

Applying the aforesaid principles to the facts of the instant case, the Tribunal was justified in allowing a set-off on account of intangible additions made in the past against unexplained cash deposit and investment of the relevant assessment years.

49. The learned counsel for the assessee submitted that in view of the above submissions, peak cash balance obtained from the Cash Flow Statement prepared by the assessee on the basis of seized material and offered for taxation by the assessee be accepted and delete various additions on account of loose papers made by the assessing officer and partly confirmed by C.I.T.(A).

50. We have heard both the sides. These additions were based on certain incriminating papers found and seized during search operation. The assessee claimed that he has prepared cash receipt and cash payments account on the basis of these documentsand the excess amount has been offered for taxation while the revenue’s claim is that the assessee has not given full details regarding the incoming and outgoing of the cash amounts, therefore, the addition of both cash receipt and cash payment is justified. The learned CIT(A) has given part relief by deleting certain additions. Some of them were double additions. In the case of Signet Industries Limited we have upheld the addition made on the basis of loose papers found and seized by the Central Excise & Customs Department, part of which was offered as income in the hands of the assessee after filing the revised return. We have sustained the addition in the case of Signet Industries Limited with regard to poly product sold out of books and sold by under-invoicing. Therefore, the same amount shall not be available with the assessee to explain various entries for the assessment years 2006-07, 2007-08 and 2008-09 in the assessee’s hands. We do agree with the pleadings of the learned counsel for the assessee that once the inflow and outflow of the cash payments is scientifically prepared datewise on the basis of the documents seized during the search operation then the addition can be sustained only of the peak so arrived at. The revenue is not allowed to selectively overlook the entries recorded in the seized material resulting in multiple additions. After considering the complexity of this issue and considering the impact of the issue decided in the case of Signet Industries Limited, we find it appropriate that the issues raised in the various grounds of these appeals of the assessee deserve to the restored to the file of the Assessing Officer with the direction to prepare a scientific datewise receipt and payment account of cash and work out the peak for these years and then make the addition accordingly.

51. So far as the issues raised in the revenue’s appeal are concerned, we find no merit as the DR was unable to controvert the findings of the learned CIT(A).

52. In the result, the appeals of the assessee are allowed for statistical purposes and the grounds raised in the revenue’s appeals for the assessment years 2010-11 to 2012-13 are dismissed.

53. GROUND NO.3.0 & 3.1 (A.Y. : 2011-12) AND 4.0 & 4.1 (A.Y. : 2012-13) OF THE ASSESSEE’S APPEAL :

Ground No.3.0 & 3.1 and 4.0 & 4.1 of assessee’s appeal reads as under :

ASSESSMENT YEAR : 2011-12

ADDITION ON ACCOUNT OF UNACCOUNTED TRADING IN POLYMERS: Rs. 29,24,624/-

3.0 The learned Commissioner of Income-tax (Appeals) erred in law as well as in facts in partly confirming the addition to the extent of Rs. 29,24,624/- made by the assessing officer, on account of unaccounted polymer trading.

3.1 In doing so, he erred in law as well as in facts in :

(a) estimating initial investment of Rs. 13,85,348/- in unaccounted polymer trading business,

(b) estimating net profit @ 10% and

(c) accordingly, determining net profit of Rs. 15,39,276/- from trading in Polymers.

ASSESSMENT YEAR :2012-13

ADDITION ON ACCOUNT OF UNACCOUNTED TRADING IN POLYMERS: Rs. 2,27,05,285/-

4.0 The learned Commissioner of Income-tax (Appeals) erred in law as well as in facts in partly confirming the addition to the extent of Rs. 2,27,05,285/- made by the assessing officer, on account of unaccounted polymer trading.

4.1 In doing so, he erred in law as well as in facts in :

(a) estimating initial investment of Rs. 1,07,55,135/- in unaccounted polymer trading business,

(b) estimating net profit @ 10% and

(c) accordingly, determining net profit of Rs. 1,19,50,150/- from trading in Polymers.

Ground No.2 of revenue’s appeal reads as under : (A.Y.2011-12 & 2012-13)

ASSESSMENT YEAR : 2011-12

2. On the facts and in the circumstances of the case the C.I.T.(A). erred in deleting the addition made on account of bogus purchase of polymers of Rs. 1,09,79,484/-.

ASSESSMENT YEAR : 2012-13

2. On the facts and in the circumstances of the case the C.I.T.(A). erred in deleting the addition made on account of bogus purchase of polymers of Rs. 8,69,97,089/-.

54. The facts relating to this ground are that during search, loose papers as per Annexure B-1, B-2 & B-3 were found and seized from the residence of the assessee which pointed out towards unaccounted trading in Polymers. As per the impugned seized material, the unaccounted purchases for the assessment years 2011-12 & 2012-13 were Rs. 1,38,53,482/- and Rs. 10,75,51,347/- respectively. The assessee explained that while the initial investment in the Polymer trading business was made out of undisclosed income offered for taxation in earlier assessment years, the net profit thereon was estimated at 2% which was based on the net profit from trading business of Signet Industries Ltd. [P.A.No. : AABCS 3489 F] (1.5%), Vikas Polymers Prop. Shri Rajesh Agarwal [P.A.No. : ADBPA 8266 C] (1.35%) and R.K.Resinplast Pvt. Ltd. [P.A.No.: AADCR 7961 F] (0.85%). The detailed working of net profit rate is enclosed herewith for your kind perusal. Annexure ‘E’. Accordingly, unaccounted net profit of Rs. 50,626/- for assessment year 2011-12 and Rs. 21,51,027/- for assessment year 2012-13 was offered for taxation as his undisclosed income.

55. The contention of the A.O. is summarized as under :

a) The A.O. accepted the net profit rate of 2% estimated by the assessee.

b) The A.O. presumed that the payment for unaccounted purchases was made in cash and therefore, the disallowance u/s.40A(3) would be applicable. Accordingly, he disallowed the entire purchases u/s.40A(3).

c) Alternatively, he applied the provisions of Sec.69C by treating the impugned purchases as unexplained expenditure and made addition thereof.

d) The A.O. held that the impugned unaccounted purchases of Signet Industries Ltd. and not the assessee and therefore, he made addition in the case of the assessee on protective basis and in the case of Signet Industries Ltd. on substantive basis. Accordingly, the following additions were made by him on protective basis in the assessee’s case:

Assessment year	Purchases	Net Profit @ 2%	Total
2011-12	1,38,53,482	50,626	1,39,04,108
2012-13	10,75,51,347	21,51,027	10,97,02,374
	12,14,04,829	22,01,653	12,36,06,482

The contention of the C.I.T.(A). is summarized as under :

a) The C.I.T.(A). held that unaccounted Polymer business and profit therefrom belong to the assessee and not Signet Industries Ltd. because

(i) all documents were found from the residential premises of Shri Mukesh Sangla at 1B, Gulmohar Extention, Indore

(ii) many documents were bearing the name of Shri Mukesh Sir, H.S.Sangla, etc.

(iii) Shri Mukesh Sangla admitted the impugned transactions to be his own transactions and offered undisclosed income emerging therefrom for taxation in his personal hands

(iv) While arriving at the above conclusion, the reliance was placed upon presumption u/s.132(4A), 292C and the judgement of the honourable Supreme Court in the case of C.I.T. vs. C.H.Atchaiah (218 ITR 239)

b) The C.I.T.(A). rejected the assessee’s justification that initial investment was made out of undisclosed income of earlier years as per the cash book produced by the assessee before him as well as the A.O..

c) He estimated initial investment at 10% of the total purchases and accordingly, the following additions was made:

i.	Assessment year : 2011-12	Rs. 13,85,348/-
ii.	Assessment year : 2012-13	Rs. 1,07,55,135/-

d) He estimated net profit @ 10% of sales and accordingly made the following additions:

i.	Assessment year : 2011-12	Rs. 15,39,276/-
ii.	Assessment year : 2012-13	Rs. 1,19,50,150/-

e) He also deleted the disallowance u/s.40A(3) by holding that the impugned disallowance was not attracted when income of the assessee was estimated on the basis of net profit rate for which reliance was placed upon the following judgements:

1.	C.I.T.(Central) Ludhiana vs. Gobind Ram	[2014] 48 taxmann.com 14 (P&H)
2.	C.I.T. (Central), Ludhiana vs. Smt. Santosh Jain	[2007] 159 Taxman 392 (P&H)
3.	C.I.T. vs. Banwari Lal Banshidhar	[1998] 229 ITR 229 (All)
4.	C.I.T. vs. Purshottamlal Tamrakar	[2004] 270 ITR 314 (MP)
5.	Jagdish Lal vs. I.T.O.	[2006] 150 Taxman 59 (Jodh)(Mag)
6.	Armour Chemicals Ltd. vs. J.C.I.T.	[2007] 17 SOT 467 (Mum)
7.	A.C.I.T.vs. Padam Chand Bhansali	[2005] 149 Taxman 35 (Jodh)(Mag)

56. He also deleted the alternate addition u/s.69C on account of unexplained expenditure by holding that in the assessee’s case, the purchases were unaccounted and not unexplained as the source of purchases was initial investment and unaccounted sale of polymer.

ASSESSEE’S CONTENTION:

Initial Investment in unaccounted business in Polymer

57. The initial investment relating to unaccounted business in Polymer was made out of undisclosed income offered for taxation by the assessee in the earlier assessment years which is evident from the cash book furnished before the lower authorities as well as filed before the honourable I.T.A.T. As per the impugned cash book, the assessee had cash balance of Rs. 3,88,55,861/- as at 01.02.2011 and Rs. 4,79,51,268/- as at 01.04.2011 which was sufficient to explain initial investment in unaccounted Polymer business of the assessee. The basis for initial investment at 10% of the purchase was simply a wild guess and basis, if at all any, was only in his mind.

58. The learned counsel for the assessee submitted that it is a settled law that the undisclosed income declared by the assessee and assessed by the lower authorities or intangible additions made by lower authorities is always available to the assessee for set off against undisclosed investments/expenses etc. In the assessee’s case, having assessed the yearly peak amount as his undisclosed income, the assessing officer cannot take a stand that such income did not exist and therefore, not available with the assessee for set off against undisclosed cash, investment, loans and advances, expenses, jewellery etc. In this regard, we rely upon the following judgements:

 (a) S. KUPPUSWAMI MUDALIAR VS. C.I.T. [51 ITR 757 (MAD)]

Additions are no doubt made very often on estimate basis. But it can never be said, or at any rate the department cannot contend, that the amount of the addition is not the real income but something which the assessee may not have earned. It is wholly illogical for the department to contend that the addition was only for purposes of taxation and that it should never be taken as true income of the assessee..

In coming to the above conclusion, the honourable high court relied upon the following observation of honourable A.P. high court in the case of Lagadapati

Subba Ramaiah v. Commissioner of Income-tax [1956] 30 ITR 593

“In the present case, it is somewhat difficult to say that there were no profits of the company out of which a dividend could have been paid. When the revenue authority levied a tax of Rs. 62,000 on the company, it proceeded on the basis that the books of the company which showed a total income of only Rs. 34,532 for all the four years of its existence were unreliable and that the bulk of the company’s profits had been kept outside its books. Now those secret profits less the income-tax paid, therefore, would be available with the company for distribution as dividends. Once the secret profits had been assessed to tax, it would have been open to the company to bring those profits into the books and distribute them, or what remained after payment of tax, as dividends.... Having assessed the company on a large sum as its undisclosed income, it cannot, at the same breath, say that these profits did not in fact exist because they did not appear from the company’s books and could not, therefore, have been available for the payment of dividends. Among common men, such an attitude would be regarded as blowing hot and cold or playing fast and loose.”

 (b) ANANTHARAM VEERASINGHAIAH & CO. VS. C.I.T. [123 ITR 457 (SC)]

In the instant case, the Tribunal had relied entirely on the basis that an intangible addition of Rs. 2,00,000 had been made to the book profits of the assessee for the assessment year 1957-58 and it inferred that an amount of Rs. 90,000 was available for being put to use in the relevant assessment year. Now it can hardly be denied that when an ‘intangible’ addition is made to the book profits during an assessment proceeding, it is on the basis that the amount represented by that addition constitutes the undisclosed income of the assessee. That income, although commonly described as ‘intangible’, is as much a part of his real income as that disclosed by his account books. It has the same concrete existence. It could be available to the assessee as the book profits could be.

There can be no escape from the proposition that the secret profits or undisclosed income of an assessee earned in an earlier assessment year may constitute a fund, even though concealed, from which the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books....

 (c) C.I.T. VS. PREM CHAND JAIN [189 ITR 320 (P&H)]

In view of the decisions in C.I.T. v. Ram Sanehi Gian Chand [1972] 86 ITR 724 and Anantharam Veerasinghaiah & Co. v. C.I.T. [1980] 123 ITR 457 the Tribunal was right in holding that the past intangible additions made in the case of the firm of which the assessee was a partner and allocated to the assessee’s share could be taken into account in considering the unexplained investments of the assessee and these would also be available for set off purposes in respect of the agreed additions for low household expenses made in the assessee’s income in the year under consideration and in remitting the matter to the AAC.

 (d) C.I.T. VS. TYARYAMAL BALCHAND [165 ITR 453(Raj)]

In the present case, the ITO was within his right to tax the amount of Rs. 16,950 as income from undisclosed sources even though he had added the amount of Rs. 18,117 in addition to the profits shown by the assesses in its account books.

However, the assessee was well within its right to plead that the amount of Rs. 16,950 was covered from the intangible income assessed at Rs. 18,117, and added in the income of the assessee and apart from this, since for the last preceding 3 years, substantial additions amounting to Rs. 32,797 had been added, the amount of Rs. 16,950 could have been taken as having come out of such intangible additions. Accordingly, the Tribunal in the instant case was right in treating the unexplained cash credit entries to the extent of Rs. 16,950 as covered by added gross profit in the sum of Rs. 18,117 on the basis of the estimate.

 (e) C.I.T. VS. JAWANMAL GEMAJI GANDHI [151 ITR 353 (BOM)]

The Supreme Court has clearly stated in the case of Anantharam Veerasinghaiah & Co. vs. C.I.T. [123 ITR 457 (SC)] that the secret profits or undisclosed income of an assessee earned in an earlier assessment year can constitute a fund, though concealed, from which the assessee may draw subsequently.

 (f) C.I.T. VS. SAHU BROTHERS [115 ITR 438 (M.P.)]

A Division Bench of this court in that decision held that the additions by the ITO in the assessments of the previous years of the assessee were on the basis that he had earned larger income than what was shown and that he had in fact earned that income. That amount was, therefore, available to him for investment in the assessment year. A similar question was considered by the Allahabad High Court in the decision in C.I.T. v. Ram Achal Ram Sewak [1969] 73 ITR 501 and it was held (page 502):

“The short question raised in the present applications is whether the deposits made by the assessee in various banks from year to year could be set off against the extra profit added during previous years. In Kuppuswami Mudaliar v. C.I.T. [1964] 51 ITR 757 , it was held by the Madras High Court that, where the income-tax authorities made an addition to the income of the assessee over and above the income as disclosed by the assessee, on an estimate basis, the amount so added must be treated as the real income of the assessee. It is not open to the authorities to take the view that the addition was only for purposes of taxation, and that it should not be regarded as the true income of the assessee.”

Apparently, therefore, it could not be contended that this income which had been added up as income from intangible sources in the previous years, of assessment was not available to the assessee. Accordingly, our answer to the question is in the affirmative.

 (g) A.C.I.T. VS. DHARAMCHAND AGRAWAL [144 ITR 143 (M.P.)]

The honourable high court followed the honourable Supreme Court ruling in case of Anantharam Veerasinghaiah & Co. vs. C.I.T. [123 ITR 457 (SC)] and approved the telescoping of undisclosed income against undisclosed assets.

 (h) C.I.T. VS. NABADWIP CHANDRA DEY [198 ITR 133 (GAU.)]

The principles governing set off of intangible additions made in the assessment against unexplained cash credits or unexplained investments are no more res integra.

The principles that emerge from the various decisions can be summarized as follows:

(1) Amounts represented by ‘intangible additions’ to the book profits of an assessee during an assessment proceeding constitute undisclosed income of the assessee and are as much a part of his real income as those disclosed by his account books. It has the same concrete existence.

(2) Income from intangible additions is available to the assessee for meeting expenditure or introducing amounts in his account books.

(3) If any unexplained cash deposit or cash credit can reasonably be related to the amount covered by the intangible additions made in the past or in that very year necessary set off may be given by the authorities on that account.

(4) In each case, the true nature of the cash deficit or cash credit must be ascertained from an overall consideration of the particular facts and circumstances of the case.

The learned counsel for the assessee, therefore, submitted that the addition confirmed by the first appellate authority on account of initial investment should be deleted or else it will amount to double addition.

59. As regard estimation of profit relating to unaccounted polymer trade of the assessee, the A.O. accepted the net profit margin of 2% but made addition u/s.40A(3) on account of cash purchases and alternatively u/s.69C on account of unexplained expenditure. C.I.T.(A) deleted additions made u/s.40A(3) and alternatively u/s.69C, he estimated net profit @ 10% by observing that profitability in accounted trade is always high because the parties do not pay relevant taxes on unaccounted sales.

60. The estimate of net profit should be a fair estimate, honest guess work, realistic and based upon rules of natural justice, equity and good conscience. The estimate should be rational and not arbitrary, dishonest and vindictive. C.I.T. Vs. Laxminarayan Badridas [5 ITR 170 (PC)]. Revenue authorities being quasijudicial authorities, fair estimate of net profit should be based upon judicious analysis of relevant factors like past history of the case, comparable cases, market conditions prevailing then, benefit accruing on account of non-payment of taxes by the transacting parties, quantum involved, etc. Such an estimate cannot be made in complete disregard of material placed on record. Gunda Subayya vs. C.I.T. [7 ITR 21 (Mad)]. The honourable Supreme Court in the case of State of Orrissa Vs. Maharaja Shri B. P. Singh Deo (76 ITR 690) held as under:

“4. Apart from coming to the conclusion that the materials placed before him by the assessee were not reliable, the Assistant Collector has given no reasons for enhancing the assessment. His order does not disclose the basis on which he has enhanced the assessment. The mere fact that the material placed by the assessee before the assessing authorities is unreliable does not empower those authorities to make an arbitrary order. The power to levy assessment on the basis of best judgment is not an arbitrary power; it is an assessment on the basis of best judgment. In other words, that assessment must be based on some relevant material. It is not a power that can be exercised under the sweet will and pleasure of the concerned authorities. The scope of that power has been explained over and over again by this court.”

In the assessee’s case, the net profit estimated by the C.I.T.(A). was without any basis and in complete disregard of the material before him. The basis of net profit rate of 10% estimated by him was simply a wild guess and basis, if at all any, was only in his mind. He did not site a single comparable case. Moreover, in unaccounted trade, both the parties do not pay any taxes and therefore no one gets any benefit inasmuch as the benefit obtained by one party for non-payment of tax is passed on to the other party. Therefore the net-profit rate cannot increase merely because the transaction was not recorded in the books. The honourable Supreme Court in the case of Dakeshwari Cotton Mills Vs. C.I.T. (26 ITR 775) held as under:

“It is not possible to define with any precision the limitations on the exercise of the discretionary jurisdiction vested in the Supreme Court by the constitutional provision made in Article 136. The limitations, whatever they be, are implicit in the nature and character of the power itself. It being an exceptional and overriding power, it has to be exercised sparingly and with caution and only in special and extraordinary situations. Beyond that it is not possible to fetter the exercise of this power by any set formula or rule. All that can be said is that the Constitution having trusted the wisdom and good sense of the Judges of Court in this matter, that itself is a sufficient safeguard and guarantee the power will only be used to advance the cause of justice, and that its exercise will be governed by well established principles which govern the exercise of overriding constitutional powers. However, when the Court reaches the conclusion that a person has been dealt with arbitrarily or that a Court or Tribunal within the territory of India has not given a fair deal to a litigant, then no technical hurdles of any kind like the finality of finding of facts or otherwise, can stand in the way of the exercise of this power because the whole intent and purpose of this article is that it is the duty of the Supreme Court to see that injustice is not perpetuated or perpetrated by decisions of Courts and Tribunals because certain laws have made the decisions of these Courts or Tribunals final and conclusive.

As regards the second contention, although ITO is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a court of law, but there the agreement ends; because it is equally clear that in making the assessment under section 23(3) he is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all and there must be something more than bare suspicion to support the assessment under section 23(3). The rule of law on this subject has been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Singh v. C.I.T. [1944] 12 ITR 393. In the instant case, the Tribunal violated certain fundamental rules of justice in reaching its conclusions. Firstly, it did not disclose to the assessee what information had been supplied to it by the departmental representative. Next, it did not give any opportunity to the assessee to rebut the material furnished to it by him, and lastly, it declined to take all the material that the assessee wanted to produce in support of its case. The result was that the assessee had not had a fair hearing. The estimate of the gross rate of profit on sales, both by the C.I.T. and the Tribunal, was based on surmises, suspicions and conjectures. The Tribunal took from the representative of the department a statement of gross profit rates of other cotton mills but did not show that statement to the assessee did not give him a opportunity to show that statement had no relevancy whatsoever to the case of the mill in question. It was not known whether the mills which had disclosed these rates were similarly situated and circumstanced. Not only did the Tribunal not show the information given by the representative of the department to the assessee, but it refused even to look at books and papers which assessee’s representative produced before the Accountant Member in his chamber. The assessment in this case and in the connected appeal, was above the figure of Rs. 55 lakhs and it was just and proper when dealing with a matter of this magnitude not to employ unnecessary haste and show impatience, particularly when it was known to the department that the books of the assessee were in the custody of the Sub-Divisional Officer. Thus both the C.I.T. and the Tribunal in estimating the gross profit rate on sales did not act on any material but acted on pure guess and suspicion. It was thus a fit case for the exercise of power under Article 136.

In the result, the appeal was to be allowed and the order of the Tribunal was to be set aside and the case was to be remanded to it with direction that in arriving at its estimate of gross profits and sales it should give full opportunity to the assessee to place any relevant material on the point that it has before the Tribunal, whether it is found in the books of account or elsewhere and it should also disclose to the assessee the material on which the Tribunal is going to found its estimate and then afford him full opportunity to meet the substance of any private inquiries made by the ITO if it is intended to make the estimate on the foot of those enquiries.

Note: The case was decided in favour of the assessee.”

61. As against the wild guess of the C.I.T.(A), the assessee referred to past history of Signet Industries Ltd. (Royal Medical Hall Vs. C.I.T. (1962) 46 ITR 748 (AP.) – estimate of income on the basis of materials available and the past assessment record was held proper) as well as two more comparable cases wherein the trading results were accepted by the Income-tax department and the net profit rate was less than 2 %. The table showing the net profit rate in comparable cases is as under.

R. K. Resin Plast Private Limited [P.A.No.: AADCR 7961 F]

Particulars	A.Y. 11-12	A.Y. 12-13	A.Y. 13-14	A.Y. 14-15
Turnover	12,39,09,631	155,512,465	286,213,212	348,979,743
Gross Profit	30,11,184	4,186,467	6,720,235	11,776,142
G/P Ratio	2.43%	2.69%	2.35%	3.37%
Net Profit	1,96,175	1,138,589	5,278,356	2,660,494
N/P Ratio	0.16%	0.73%	1.84%	0.76%

Vikas Polymers (Prop. Rajesh Agarwal) [P.A.No.: ADBPA 8266 C]

Particulars	A.Y. 11-12	A.Y. 12-13	A.Y. 13-14
Turnover	60,327,183	69,378,951	70,789,660
Gross Profit	3,897,105	4,590,468	4,921,269
G/P Ratio	6.46%	6.62%	6.95%
Net Profit	837,670	933,699	982,897
N/P Ratio	1.39%	1.35%	1.39%

Signet Industries Limited [P.A.No.: AABCS 3489 F]

Particulars	A.Y. 11-12	A.Y. 12-13	A.Y. 13-14	A.Y. 14-15
Turnover	4,32,02,88,732	5,11,92,53,770	5,63,57,83,317	6,10,80,35,458
Gross Profit	24,99,07,205	53,01,16,534	68,71,62,395	88,23,18,576
G/P Ratio	5.78%	10.36%	12.19%	14.45%
Net Profit	9,18,14,175	8,05,03,622	17,57,23,076	21,21,88,332
N/P Ratio	2.13%	1.57%	3.12%	3.47%

62. The learned counsel for the assessee, therefore, submitted that the unaccounted net profit of Polymer business should be estimated at 2% as evident from the comparable cases.

63. We have heard both the sides on this issue. The addition made on the basis of loose papers seized as Annexures B-1, B-2 and B-3 from the residence of the assessee, we have held in the case of Signet Industries Limited that Shri Mukesh Sangle has admitted doing the business of trading in polymer which was not recorded in the books of accounts. In various loose papers seized the name of Mukesh Sangla was appearing, therefore, these incriminating papers shall be considered only in case of Mukesh Sangla for making the addition.

64. The controversy is regarding the addition of initial investment for the purchase of polymer for trading business and estimating the profit @ 10% on this trading. This addition for initial investment has been made at Rs. 13,85,349/- for the assessment years 2011-12, Rs. 1,07,55,135/- for the assessment year 2011-12.

65. After hearing both the sides, we find that on the issue of initial investment we find it appropriate to restore the issue to the file of the Assessing Officer for the reason that we have directed to sustain the addition of peak amount in earlier years. If such amount is available for telescoping the initial investment, this addition shall be deleted. On the issue of the quantum of addition, we hold that it is on higher side as the addition is almost 50% of the unaccounted trading. In view of this matter, we direct to reduce the addition if finally sustained to the tune of 10% of the total unaccounted sales of polymer trading. On the issue of estimating the net profit we hold that we have already held 4% of sales as reasonable profit on such sales, therefore, the addition for determining the NP shall be worked out @ 4% of such sales. Since the addition has been made on estimated basis, therefore, no addition is called for by invoking the provisions of section 40A(3) of the Act.

66. On the issue raised regarding the bogus purchases of polymer of Rs. 1,09,79,489/- in the assessment year 2011-12 and Rs. 8,69,97,089/- in the assessment year 2012-13, we uphold the addition up to the NP rate of 4% after considering various pleadings and aspects of the case. We decide these grounds accordingly.

67. GROUND NO.5.0 & 5.1 OF THE ASSESSEE’S APPEAL AND GROUND NO.3 OF REVENUE’S APPEAL A.Y. : 2012-13)

9.0 Ground No.5.0 & 5.1 (A.Ys. : 2012-13) of assessege’s appeal reads as under :

ASSESSMENT YEAR : 2012-13

UNEXPLAINED INVESTMENT IN DIAMOND JEWELLERY : Rs. 74,72,863/-

5.0 The learned Commissioner of Income-tax (Appeals) erred in law as well as in facts in partly confirming the addition to the extent of Rs. 74,72,863/- made by the assessing officer on account unexplained investment in diamond jewellery.

 TELESCOPING OF UNEXPLAINED INVESTMENT IN DIAMOND JEWELLERY (Rs. 74,72,863/-) AND SILVERWARES (Rs. 49,77,460/-) AGAINST UNDISCLOSED INCOME:

5.1 In doing so, he erred in law as well as in facts in not telescoping the unexplained diamond ornaments and unexplained silverwares against undisclosed income offered for taxation by the assessee.

Ground No.3 (A.Ys. : 2012-13) of revenue’s appeals reads as under:

ASSESSMENT YEAR :2012-13

3. On the facts and in the circumstances of the case the C.I.T.(A). erred in deleting the addition made on account of unexplained investment in jewellery of Rs. 2,68,86,366/-.

68. The facts, in brief are that the details of gold ornaments, silverwares and diamond ornaments found during search are as under:

Gold Ornaments :

Particulars	Gross Weight Gms.	Net Weight Gms.	Value as on the date of search Rs.
Bedroom of Smt. Monika	862.69	615.70	22,15,066
Bedroom of Smt. Avantika	3.66	3.20	7,600
Locker No. 357	826.21	811.83	19,33,053
Locker No. 434	201.56	185.55	4,29,938
	1,894.12	1,616.28	45,85,657

Silverwares :

Particulars	Gross Weight Kgs.	Net Weight Kgs.	Value as on the date of search Rs.
Bedroom of Smt. Monika	175.84	175.84	88,27,764
	175.84	175.84	88,27,764

Diamond Ornaments :

Particulars	Gold			Diamonds		Other Stone
	Gross Weight(Gms.)	Net Weight (Gms.)	Value (Rs.)	Cts	Value (Rs.)		Value (Rs.)
Bedroom of Smt. Monika	1406.25	1237.27	25,63,885	247.08	1,23,83,950	267.15	13,035
On Persons	18.45	17.95	37,614	2.50	40,000
Bedroom of Smt.Avantika	155.61	137.86	2,88,886	8.25	1,03,050
Locker No. 357	363.77	331.25	6,90,407	87.60	39,42,500		4,500
Locker No. 434	1278.42	1090.62	22,29,774	388.20	1,86,78,274		65,050
	3222.50	2814.95	58,10,566	733.63	3,51,47,774	267.15	82,585

a) The details of gold ornaments, silverwares and diamond ornaments as per Wealth-tax Returns filed by the assessee are as under:

Gold Ornaments

Particulars	Gross Weight	Net Weight	Value as at 31.03.2008
Shri Mukesh Sangla	208.18	208.18	2,33,700/-
M/s Mukesh Sangla (HUF)	617.43	613.63	6,91,994/-
Shri Saurabh Sangla	212.56	193.42	2,00,187/-
Smt.Monika Sangla	1,965.95	1,886.45	19,49,438/-
	3,004.12	2,901.68	30,75,319

 Silverwares

Particulars	Gross Weight Kgs.	Net Weight Kgs.	Value as at 31.03.2008 Rs.
Shri Mukesh Sangla	25.200	25.200	5,42,505/-
M/s.Mukesh Sangla (HUF)	21.700	21.700	4,67,157/-
Smt. Avantika Sangla	30.353	30.353	4,56,242/-
	77.253	77.253	14,65,904/-

 Diamond Ornaments

Particulars	Gold			Diamonds		Other
	Gross Weight (Gms.)	Net Weight (Gms.)	Value (Rs.)	Cts	Value (Rs.)		Value (Rs.)
Shri Mukesh Sangla	798.65	736.01	6,69,832	340.50	34,16,048	-	-
M/s Mukesh Sangla (HUF)	333.50	301.07	2,73,750	219.15	19,07,650	38.40	400
Shri Saurabh Sangla	1319.50	1053.95	9,55,159	270.14	59,07,590	357.568	1,33,616
Smt. Monika Sangla	1367.37	1210.46	11,01,512	371.68	1,07,92,000	319.95	46,000
Smt.Avantika Sangla	611.40	535.50	1,01,818	181.51	60,82,760	198.00	-
	4430.42	3836.99	31,02,071	1382.98	2,81,06,048

b) Also, substantial jewellery was acquired by the assessee during marriage of his son, Shri Saurabh Sangla which was duly shown in the books of account of the family members and wealth-tax returns filed before the Income-tax Department. The details of which are as follows:

Name of the family member	Amount (Rs.)	Asstt. Year
Shri Mukesh Sangla	5,00,000/-	2006-07
	5,00,000/-
Shri Saurabh Sangla	39,48,124/-	2006-07
Shri Saurabh Sangla	1,80,891/-	2007-08
	41,29,015/-
Smt.Monika Sangla	53,32,523/-	2006-07
Smt.Monika Sangla	10,000/-	2007-08
	53,43,523/-

c) Ms. Avantika Sangla, the daughter-in-law of the assessee also acquired jewellery of Rs. 55,50,570/- and silver wares of 30.353 Kgs. Which was duly shown in her Income-tax Returns, the details of which are as follows :

Asstt. Year	Jewellery	Silverwares
2005-06	-	1,82,706
2006-07	35,99,454	2,73,535
2007-08	6,75,070	-
2008-09	1,20,071	-
2009-10	44,975	-
2011-12	11,11,000	-
	55,50,570	4,56,242

 d) As the gold ornaments as per Wealth-tax Returns filed by members of Sangla family was more than the gold ornaments found during search, the assessee did not offer any undisclosed income on account of gold ornaments found during search.

Gold Jewellery found during search			Gold Jewellery as per wealth tax returns
Particulars	Gross Weight (Gms.)	Net Weight (Gms.)	Name of the assessee	Gross Weight (Gms.)	Net Weight (Gms.)
Bedroom of Smt. Monika Sangla	862.69	615.70	Mukesh Sangla	208.18	208.18
Bedroom of Smt. Avantika Sangla	3.66	3.20	Mukesh Sangla HUF	617.43	613.63
Locker No. 357	826.21	811.83	Saurabh Sangla	212.56	193.42
Locker No. 434	201.56	185.55	Monika Sangla	1965.95	1886.45
	1,894.12	1,616.28		3004.12	2901.68

e) As the silver wares found during search were more than the silverwares as per Wealth-tax Returns filed by the members of Sangla family, the excess silver wares weighing 98.587 Kgs. and valued at Rs. 49,49,402/- were offered for taxation by the assessee as his undisclosed income. However, impugned excess silverwares valued at Rs. 49,49,402/- were telescoped against the undisclosed income declared in preceding years.

f) In the case of diamond ornaments, the total weight of diamonds (carat wise) and net gold weight (grams) were compared with the total weight of diamonds (carat wise) and net gold weight (grams) found during search. As the carat wise weight of diamonds and grams-wise weight of net gold content as per Wealth-tax Return was more as compared to the carat wise weight of diamonds and grams-wise weight of net gold content found during search, the assessee did not offer any undisclosed income on account of diamond ornaments.

Gold Jewellery found during search				Gold Jewellery as per wealth tax returns
Particulars	Gold		Diamonds	Name of the assessee	Gold		Diamonds
	Gross Weight (Gms.)	Net Weight (Gms.)	Cts		Gross Weight (Gms.)	Net Weight (Gms.)	Cts
Bedroom of Smt. Monika Sangla	1406.25	1237.27	247.08	Mukesh Sangla	798.65	736.01	340.50
On Persons	18.45	17.95	2.50	Mukesh Sangla HUF	333.50	301.07	219.15
Bedroom of Smt. Avantika Sangla	155.61	137.86	8.25	Saurabh Sangla	1319.50	1053.95	270.14
Locker No. 357	363.77	331.25	87.60	Monika Sangla	1367.37	1210.46	371.68
Locker No. 434	1278.42	1090.62	388.20
	3222.50	2814.95	733.63		3819.02	3301.49	1201.47

g) The assessing officer compared jewellery as per balance sheets of members of Sangla family with the value of jewellery found during search and brought the same to tax as undisclosed income of the assessee. The basis adopted by the assessing officer was absolutely illogical because in the books of accounts, the assets are stated at historical cost whereas in the Wealth-tax Return, the assets are stated at market rate on the valuation date. In fact, the comparison has to be on the basis of quantity of jewellery and silver wares found during search with the quantity of jewellery and silver wares as per Wealth-tax Returns.

h) However, in the alternative and without prejudice submission, the assessee determined the value of unmatched diamond ornaments at Rs. 74,72,863/- and offered such unmatched diamond ornaments for tax to be telescoped against undisclosed income of preceding years. However, the issue of telescoping was not considered by the C.I.T.(A).

69. The Assessing Officer treated the difference between value of jewellery and silverwares found during search and value of jewellery as per balance sheet of various members of Sangla Family as unexplained jewellery and made addition of Rs. 3,92,41,339/- [Silverwares : Rs. 87,82,414/- (+) Diamond studded gold jewellery : Rs. 3,04,58,925/-]. The detailed working thereof is as under:

Particulars		Jewellery	Silverwares
Residence		1,76,03,086	88,77,764
Locker No.357, UCO Bank, New Palasia Branch, Indore		65,70,460
Locker No.434, UCO Bank, New Palasia Branch, Indore		1,91,08,212
Total		4,32,81,758	88,77,764
Less :	Jewellery as per balance sheets
	Shri Mukesh Sangla	9,66,784	28,444
	M/s. Mukesh Sangla (HUF)	18,59,515	66,906
	Shri Saurabh Sangla	43,98,391
	Smt. Monica Sangla	56,48,143
		1,28,72,833	95,350
Unaccounted Jewellery		3,04,08,925	87,82,414

70. The contention of the C.I.T.(A). is summarised as under.The basis of determination of unexplained jewellery i.e. difference between jewellery found during search and jewellery as per balance sheets of members of Sangla family was totally illogical because in the books of accounts, the assets are stated at historical cost whereas in the Wealth-tax Return, the assets are stated at market rate on the valuation date.The comparison should be on the basis of quantity of jewellery and silver wares found during search with the quantity of jewellery and silver wares as per Wealth-tax Returns. No addition on account of gold ornaments was warranted as gold ornaments as per Wealth-tax and income-tax returns of members of Sangla family was much higher than the gold ornaments found during search. No addition on account of diamond jewellery was warranted as the carat wise weight of diamonds and grams-wise weight of net gold content as per Wealth-tax Return was more as compared to the carat wise weight of diamonds and grams-wise weight of net gold content found during search. The unmatched diamond ornaments of Rs. 74,72,863/- were offered for taxation by the assessee as per his without prejudice and alternative submission. The unaccounted silver wares were determined at Rs. 49,49,402/-, which had been offered for taxation by the assessee in the Return of Income and the assessee sought to telescope the same against undisclosed income of the preceding years. The assessee’s claim for telescoping was not considered.

71. The learned counsel for the assessee did not offer any undisclosed income on account of diamond ornaments because the carat wise weight of diamonds and grams-wise weight of net gold content as per Wealth-tax Return was more as compared to the carat wise weight of diamonds and grams-wise weight of net gold content found during search. Therefore, no addition on account of unaccounted diamond ornaments was warranted. The learned counsel for the assessee submitted that the assessee determined the value of unmatched diamond ornaments at Rs. 74,72,863/- as required by the A.O. and it is only as an alternative and without prejudice submission, offered such unmatched diamond ornaments for tax to be telescoped against undisclosed income of preceding years. It is submitted that addition should not have been sustained by the C.I.T.(A). on the basis of such alternative and without prejudice submission, particularly when total diamond ornaments found during search were less than the diamond ornaments disclosed in the Wealth-tax Returns filed by the members of Sangla family.

72. It was submitted that it is a settled law that the undisclosed income declared by the assessee and assessed by the lower authorities or intangible additions made by lower authorities is always available to the assessee for set off against undisclosed investments/expenses etc. In the assessee’s case, having assessed the yearly peak amount as his undisclosed income, the assessing officer cannot take a stand that such income did not exist and therefore, not available with the assessee for set off against undisclosed cash, investment, loans and advances, expenses, jewellery etc. In this regard, we rely upon the following judgements:

 (a) S. KUPPUSWAMI MUDALIAR VS. C.I.T. [51 ITR 757 (MAD)]

Additions are no doubt made very often on estimate basis. But it can never be said, or at any rate the department cannot contend, that the amount of the addition is not the real income but something which the assessee may not have earned. It is wholly illogical for the department to contend that the addition was only for purposes of taxation and that it should never be taken as true income of the assessee..

In coming to the above conclusion, the honourable high court relied upon the following observation of honourable A.P. high court in the case of Lagadapati

Subba Ramaiah v. Commissioner of Income-tax [1956] 30 ITR 593

"In the present case, it is somewhat difficult to say that there were no profits of the company out of which a dividend could have been paid. When the revenue authority levied a tax of Rs. 62,000 on the company, it proceeded on the basis that the books of the company which showed a total income of only Rs. 34,532 for all the four years of its existence were unreliable and that the bulk of the company's profits had been kept outside its books. Now those secret profits less the income-tax paid, therefore, would be available with the company for distribution as dividends. Once the secret profits had been assessed to tax, it would have been open to the company to bring those profits into the books and distribute them, or what remained after payment of tax, as dividends.... Having assessed the company on a large sum as its undisclosed income, it cannot, at the same breath, say that these profits did not in fact exist because they did not appear from the company's books and could not, therefore, have been available for the payment of dividends. Among common men, such an attitude would be regarded as blowing hot and cold or playing fast and loose."

 (b) ANANTHARAM VEERASINGHAIAH & CO. VS. C.I.T. [123 ITR 457 (SC)]

In the instant case, the Tribunal had relied entirely on the basis that an intangible addition of Rs. 2,00,000 had been made to the book profits of the assessee for the assessment year 1957-58 and it inferred that an amount of Rs. 90,000 was available for being put to use in the relevant assessment year. Now it can hardly be denied that when an 'intangible' addition is made to the book profits during an assessment proceeding, it is on the basis that the amount represented by that addition constitutes the undisclosed income of the assessee. That income, although commonly described as 'intangible', is as much a part of his real income as that disclosed by his account books. It has the same concrete existence. It could be available to the assessee as the book profits could be.

There can be no escape from the proposition that the secret profits or undisclosed income of an assessee earned in an earlier assessment year may constitute a fund, even though concealed, from which the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books....

 (c) C.I.T. VS. PREM CHAND JAIN [189 ITR 320 (P&H)]

In view of the decisions in CIT v. Ram Sanehi Gian Chand [1972] 86 ITR 724 and Anantharam Veerasinghaiah & Co. v. CIT [1980] 123 ITR 457 the Tribunal was right in holding that the past intangible additions made in the case of the firm of which the assessee was a partner and allocated to the assessee's share could be taken into account in considering the unexplained investments of the assessee and these would also be available for set off purposes in respect of the agreed additions for low household expenses made in the assessee's income in the year under consideration and in remitting the matter to the AAC.

 (d) C.I.T. VS. TYARYAMAL BALCHAND [165 ITR 453(Raj)]

In the present case, the ITO was within his right to tax the amount of Rs. 16,950 as income from undisclosed sources even though he had added the amount of Rs. 18,117 in addition to the profits shown by the assesses in its account books.

However, the assessee was well within its right to plead that the amount of Rs. 16,950 was covered from the intangible income assessed at Rs. 18,117, and added in the income of the assessee and apart from this, since for the last preceding 3 years, substantial additions amounting to Rs. 32,797 had been added, the amount of Rs. 16,950 could have been taken as having come out of such intangible additions. Accordingly, the Tribunal in the instant case was right in treating the unexplained cash credit entries to the extent of Rs. 16,950 as covered by added gross profit in the sum of Rs. 18,117 on the basis of the estimate.

 (e) C.I.T. VS. JAWANMAL GEMAJI GANDHI [151 ITR 353 (BOM)]

The Supreme Court has clearly stated in the case of Anantharam Veerasinghaiah & Co. vs. C.I.T. [123 ITR 457 (SC)] that the secret profits or undisclosed income of an assessee earned in an earlier assessment year can constitute a fund, though concealed, from which the assessee may draw subsequently.

 (f) C.I.T. VS. SAHU BROTHERS [115 ITR 438 (M.P.)]

A Division Bench of this court in that decision held that the additions by the ITO in the assessments of the previous years of the assessee were on the basis that he had earned larger income than what was shown and that he had in fact earned that income. That amount was, therefore, available to him for investment in the assessment year. A similar question was considered by the Allahabad High Court in the decision in CIT v. Ram Achal Ram Sewak [1969] 73 ITR 501 and it was held (page 502):

"The short question raised in the present applications is whether the deposits made by the assessee in various banks from year to year could be set off against the extra profit added during previous years. In Kuppuswami Mudaliar v. CIT [1964] 51 ITR 757 , it was held by the Madras High Court that, where the income-tax authorities made an addition to the income of the assessee over and above the income as disclosed by the assessee, on an estimate basis, the amount so added must be treated as the real income of the assessee. It is not open to the authorities to take the view that the addition was only for purposes of taxation, and that it should not be regarded as the true income of the assessee."

Apparently, therefore, it could not be contended that this income which had been added up as income from intangible sources in the previous years, of assessment was not available to the assessee. Accordingly, our answer to the question is in the affirmative.

 (g) A.C.I.T. VS. DHARAMCHAND AGRAWAL [144 ITR 143 (M.P.)]

The honourable high court followed the honourable Supreme Court ruling in case of Anantharam Veerasinghaiah & Co. vs. C.I.T. [123 ITR 457 (SC)] and approved the telescoping of undisclosed income against undisclosed assets.

 (h) C.I.T. VS. NABADWIP CHANDRA DEY [198 ITR 133 (GAU.)]

The principles governing set off of intangible additions made in the assessment against unexplained cash credits or unexplained investments are no more res integra.

The principles that emerge from the various decisions can be summarised as follows:

(1) Amounts represented by 'intangible additions' to the book profits of an assessee during an assessment proceeding constitute undisclosed income of the assessee and are as much a part of his real income as those disclosed by his account books. It has the same concrete existence.

(2) Income from intangible additions is available to the assessee for meeting expenditure or introducing amounts in his account books.

(3) If any unexplained cash deposit or cash credit can reasonably be related to the amount covered by the intangible additions made in the past or in that very year necessary set off may be given by the authorities on that account.

(4) In each case, the true nature of the cash deficit or cash credit must be ascertained from an overall consideration of the particular facts and circumstances of the case.

Applying the aforesaid principles to the facts of the instant case, the Tribunal was justified in allowing a set-off on account of intangible additions made in the past against unexplained cash deposit and investment of the relevant assessment years.

73. The ld. AR submitted on the basis of the above facts and legal position to delete the addition on account of diamond jewellery of Rs. 74,72,863/-.

74. We have heard both the sides. The Learned CIT(A) has partly confirmed addition of Rs. 74,72,863/- on account of unexplained investment in diamond and jewellery and silver-wares of Rs. 49,77,460/- in the A.Y.2012-13. The learned CIT(A) has deleted addition of Rs. 2,68,86,336/- for which revenue is in appeal. The assessee himself offered unmatched diamond ornaments of Rs. 74,72,863/- for taxation for the assessment year under consideration. The assessee also offered unaccounted silver wares worth Rs. 49,49,402/- for taxation.

75. We have gone the through the various details filed before us regarding jewellery items of various family members. We have also considered the alternate plea of the assessee and after considering all these aspects, we find no merit in the appeal of the assessee. The learned CIT(A) has rightly sustained the addition up to Rs. 74,72,863/- on the diamond ornaments. Similarly, the addition sustained on the silver wares was also justified as the assessee was having no explanation for the same. The assessee himself has offered the silver wares of Rs. 49,49,402/- in his return of income. Moreover, the assessee has disclosed the unaccounted income for the assessment year 2012-13 at Rs. 12,61,00,000/- in the statement recorded u/s 132(4) and the learned CIT(A) has made further addition of Rs. 9,43,55,415/- on the basis of difference between the undisclosed income declared by the assessee in the statements recorded u/s 132(4) and the addition sustained of Rs. 3,17,44,585/- for the assessment year 2012-13. Therefore, we find no merit in these grounds of the assessee’s appeal. The same are dismissed.

76. GROUND NO.6.0 (A.Ys. : 2008-09 & 2012-13), 2.0 & 2.1 (A.Y. : 2009-10) AND 4.0 (A.Y. : 2010-11 & 2011-12) OF THE ASSESSEE’S APPEAL :

Ground No.6.0 (A.Ys. : 2008-09 & 2012-13), 2.0 & 2.1 (A.Y. : 2009-10) and 4.0 (A.Y. : 2010-11 & 2011-12)of assessee’s appeal reads as under :

ASSESSMENT YEAR : 2008-09, 2010-11, 2011-12& 2012-13

TELESCOPING

Without prejudice to the above grounds of appeal and in the event of various additions made by the assessing officer are confirmed at any stage of appellate proceedings in any of the assessees belonging to Signet Group as well as Sangla Family, the assessee may be allowed to telescope, to the extent possible, the undisclosed income finally assessed by the Income-tax Department against unexplained investment in jewellery, unexplained cash credit in the form of unsecured loans, share application money and share capital, unexplained cash, unexplained expenditure, unexplained investment, unexplained stock, unexplained bank transactions, unexplained bank accounts etc. belonging to Signet Group as well as Sangla Family so as to prevent addition of income as well assets, liabilities and expenses.

ASSESSMENT YEAR : 2009-10

TELESCOPING

2.0 The learned Commissioner of Income-tax (Appeals) erred in law as well as in facts in confirming the rejection of scientifically prepared date-wise cash book by the assessing officer and not considering the peak determined by the assessee on the basis of date wise recording of cash receipts and cash payments and offered for taxation, despite holding at the same time that both the receipts and the payments cannot be taxed and receipts were available for making payments.

2.1 Without prejudice to the above grounds of appeal and in the event of various additions made by the assessing officer are confirmed at any stage of appellate proceedings in any of the assessees belonging to Signet Group as well as Sangla Family, the assessee may be allowed to telescope, to the extent possible, the undisclosed income finally assessed by the Income-tax Department against unexplained investment in jewellery, unexplained cash credit in the form of unsecured loans, share application money and share capital, unexplained cash, unexplained expenditure, unexplained investment, unexplained stock, unexplained bank transactions, unexplained bank accounts etc. belonging to Signet Group as well as Sangla Family so as to prevent addition of income as well assets, liabilities and expenses.

The Assessing Officer and the learned CIT(A) did not deal with the issue of telescoping.

77. Before us, the learned counsel for the assessee submitted that without prejudice to the above grounds of appeal and submission made by the assessee, Shri Mukesh Sangla and other group entities in respect of additions made on various grounds, in the event of various additions made by the assessing officer are confirmed at any stage of appellate proceedings in any of the assessees belonging to Signet Group as well as Sangla Family, the assessee may be allowed to telescope, to the extent possible, the undisclosed income finally assessed by the Income-tax Department against unexplained investment in jewellery, unexplained cash credit in the form of unsecured loans, share application money and share capital, unexplained cash, unexplained expenditure, unexplained investment, unexplained stock, unexplained bank transactions, unexplained bank accounts etc. belonging to Signet Group as well as Sangla Family so as to prevent addition of income as well assets, liabilities and expenses at assessee’s peril.

78. The learned counsel for the assessee submittred that the applicability of concept of telescoping is further strengthened on perusal of material found and seized from the residence of Shri Mukesh Sangla, wherefrom it emerges that the impugned material contained transactions like receipts from various sources, payments to various persons, purchase and sale of gold, unaccounted trading in polymer, stock of chick peas, etc. As there were a large number of cash receipts and cash payments, investment etc. trading in polymers etc., it was not possible to determine correct undisclosed income merely by addition of all payments and receipts. Under these Shri Mukesh Sangla prepared a cash flow statement or cash book in which all the transaction appearing in the impugned seized material were recorded date wise, year-wise peak was worked out and such peak amount was offered for taxation by Shri Mukesh Sangla in his Return of Income filed pursuant to the notice issued u/s.153A. The income emerging from the impugned seized material was offered for taxation in Shri Mukesh Sangla’s hands because (a) the seized material was found and seized from the his residence and (b) the seized material contained several accounts and documents which bear his name, (c) the impugned pages were owned up by him in his statement recorded u/s.132(4) and (d) polymer business was carried out by Shri Mukesh Sangla in his personal capacity.

79. The learned counsel for the assessee submitted that it is a settled law that the undisclosed income declared by the assessee and assessed by the authorities below is available to the assessee for setting off against undisclosed investments/expenses etc.. Having assessed the yearly peak amount as his undisclosed income, the assessing officer cannot take a stand that such income did not exist and therefore, not available with the assessee for set off against undisclosed cash, investment, loans and advances, expenses etc. In support of the above proposition, the reliance is placed upon the following judgments:

S. KUPPUSWAMI MUDALIAR VS. C.I.T. [51 ITR 757 (MAD)]

Additions are no doubt made very often on estimate basis. But it can never be said, or at any rate the department cannot contend, that the amount of the addition is not the real income but something which the assessee may not have earned. It is wholly illogical for the department to contend that the addition was only for purposes of taxation and that it should never be taken as true income of the assessee..

In coming to the above conclusion, the honourable high court relied upon the following observation of honourable A.P. high court in the case of Lagadapati Subba Ramaiah v. Commissioner of Incometax [1956] 30 ITR 593

"In the present case, it is somewhat difficult to say that there were no profits of the company out of which a dividend could have been paid. When the revenue authority levied a tax of Rs. 62,000 on the company, it proceeded on the basis that the books of the company which showed a total income of only Rs. 34,532 for all the four years of its existence were unreliable and that the bulk of the company's profits had been kept outside its books. Now those secret profits less the income-tax paid, therefore, would be available with the company for distribution as dividends. Once the secret profits had been assessed to tax, it would have been open to the company to bring those profits into the books and distribute them, or what remained after payment of tax, as dividends.... Having assessed the company on a large sum as its undisclosed income, it cannot, at the same breath, say that these profits did not in fact exist because they did not appear from the company's books and could not, therefore, have been available for the payment of dividends. Among common men, such an attitude would be regarded as blowing hot and cold or playing fast and loose."

(a) ANANTHARAM VEERASINGHAIAH & CO. VS. C.I.T. [123 ITR 457 (SC)]

In the instant case, the Tribunal had relied entirely on the basis that an intangible addition of Rs. 2,00,000 had been made to the book profits of the assessee for the assessment year 1957-58 and it inferred that an amount of Rs. 90,000 was available for being put to use in the relevant assessment year. Now it can hardly be denied that when an 'intangible' addition is made to the book profits during an assessment proceeding, it is on the basis that the amount represented by that addition constitutes the undisclosed income of the assessee. That income, although commonly described as 'intangible', is as much a part of his real income as that disclosed by his account books. It has the same concrete existence. It could be available to the assessee as the book profits could be.

There can be no escape from the proposition that the secret profits or undisclosed income of an assessee earned in an earlier assessment year may constitute a fund, even though concealed, from which the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books....

(b) C.I.T. VS. PREM CHAND JAIN [189 ITR 320 (P&H)]

In view of the decisions in CIT v. Ram Sanehi Gian Chand [1972] 86 ITR 724 and Anantharam Veerasinghaiah & Co. v. CIT [1980] 123 ITR 457 the Tribunal was right in holding that the past intangible additions made in the case of the firm of which the assessee was a partner and allocated to the assessee's share could be taken into account in considering the unexplained investments of the assessee and these would also be available for set off purposes in respect of the agreed additions for low household expenses made in the assessee's income in the year under consideration and in remitting the matter to the AAC.

(c) C.I.T. VS. TYARYAMAL BALCHAND [165 ITR 453(Raj)]

In the present case, the ITO was within his right to tax the amount of Rs. 16,950 as income from undisclosed sources even though he had added the amount of Rs. 18,117 in addition to the profits shown by the assesses in its account books. However, the assessee was well within its right to plead that the amount of Rs. 16,950 was covered from the intangible income assessed at Rs. 18,117, and added in the income of the assessee and apart from this, since for the last preceding 3 years, substantial additions amounting to Rs. 32,797 had been added, the amount of Rs. 16,950 could have been taken as having come out of such

intangible additions. Accordingly, the Tribunal in the instant case was right in treating the unexplained cash credit entries to the extent of Rs. 16,950 as covered by added gross profit in the sum of Rs. 18,117 on the basis of the estimate.

(d) C.I.T. VS. JAWANMAL GEMAJI GANDHI [151 ITR 353 (BOM)]

The Supreme Court has clearly stated in the case of Anantharam Veerasinghaiah & Co. vs. C.I.T. [123 ITR 457 (SC)] that the secret profits or undisclosed income of an assessee earned in an earlier assessment year can constitute a fund, though concealed, from which the assessee may draw subsequently.

(e) C.I.T. VS. SAHU BROTHERS [115 ITR 438 (M.P.)]

A Division Bench of this court in that decision held that the additions by the ITO in the assessments of the previous years of the assessee were on the basis that he had earned larger income than what was shown and that he had in fact earned that income. That amount was, therefore, available to him for investment in the assessment year. A similar question was considered by the Allahabad High Court in the decision in CIT v. Ram Achal Ram Sewak [1969] 73 ITR 501 and it was held (page 502):

"The short question raised in the present applications is whether the deposits made by the assessee in various banks from year to year could be set off against the extra profit added during previous years. In Kuppuswami Mudaliar v. CIT [1964] 51 ITR 757 , it was held by the Madras High Court that, where the income-tax authorities made an addition to the income of the assessee over and above the income as disclosed by the assessee, on an estimate basis, the amount so added must be treated as the real income of the assessee. It is not open to the authorities to take the view that the addition was only for purposes of taxation, and that it should not be regarded as the true income of the assessee."

Apparently, therefore, it could not be contended that this income which had been added up as income from intangible sources in the previous years, of assessment was not available to the assessee. Accordingly, our answer to the question is in the affirmative.

(f) A.C.I.T. VS. DHARAMCHAND AGRAWAL [144 ITR 143 (M.P.)]

The honourable high court followed the honourable Supreme Court ruling in case of Anantharam Veerasinghaiah & Co. vs. C.I.T. [123 ITR 457 (SC)] and approved the telescoping of undisclosed income against undisclosed assets.

(g) C.I.T. VS. NABADWIP CHANDRA DEY [198 ITR 133 (GAU.)]

The principles governing set off of intangible additions made in the assessment against unexplained cash credits or unexplained investments are no more res integra.

The principles that emerge from the various decisions can be summarised as follows:

(1) Amounts represented by 'intangible additions' to the book profits of an assessee during an assessment proceeding constitute undisclosed income of the assessee and are as much a part of his real income as those disclosed by his account books. It has the same concrete existence.

(2) Income from intangible additions is available to the assessee for meeting expenditure or introducing amounts in his account books.

(3) If any unexplained cash deposit or cash credit can reasonably be related to the amount covered by the intangible additions made in the past or in that very year necessary set off may be given by the authorities on that account.

(4) In each case, the true nature of the cash deficit or cash credit must be ascertained from an overall consideration of the particular facts and circumstances of the case.

Applying the aforesaid principles to the facts of the instant case, the Tribunal was justified in allowing a set-off on account of intangible additions made in the past against unexplained cash deposit and investment of the relevant assessment years.

80. In the assessee’s case, the peak credit offered for taxation by Shri Mukesh Sangla as his undisclosed income and undisclosed profit from polymer trading etc., was fund available with him for explaining various additions like share application money, share capital, silver wares, Gold and diamond jewellery, unsecured loans, cash transaction with Shri Deepak Kalani and Shri Pankaj Kalani, initial investment for undisclosed polymer trading business etc. On perusal of available cash balances for the entire block period as per the cash flow statement, it is quite manifest that Shri Mukesh Sangla had sufficient funds with him to set off addition on account of share application money, share capital, silver wares, Gold and diamond jewellery, unsecured loans, cash transaction with Shri Deepak Kalani and Shri Pankaj Kalani, initial investment for undisclosed polymer trading business etc. Therefore, the addition of peak credit as per cash flow statement prepared from entries recorded in loose paper found and seized during search in Shri Mukesh Sangla’s case as well as addition on account of share application money, share capital, silver wares, Gold and diamond jewellery, unsecured loans, cash transaction with Shri Deepak Kalani and Shri Pankaj Kalani, initial investment for undisclosed polymer trading business etc. in the case of Shri Mukesh Sangla and other group entities would amount to double addition.

81. From the seized documents, it is clear that the source of undisclosed income in the case of Shri Mukesh Sangla was unaccounted polymer business and other sources. The undisclosed income so generated was available with him to set off against addition on account of share application money, share capital, unsecured loans, cash transactions with Shri Pankaj Kalani and Shri Deepak Kalani etc. Therefore, it is humbly submitted that the addition on account of share application money, share capital, unsecured loans, cash transactions with Shri Pankaj Kalani and Shri Deepak Kalani etc. should be set off against undisclosed income determined on the basis of seized material in the case of Shri Mukesh Sangla.

82. In all these grounds the assessee has raised the issue of telescoping. After hearing both the sides, we are of the view that wherever it is possible to telescope the unaccounted income with the unxplained investment in any other asset including the jewellery, unexplained cash credits, unexplained investment or unexplained bank transactions, etc. relating to the assessee then such telescoping shall be justified. For the purpose of telescoping, we restore the issue to the file of the Assessing Officer to do so. We order accordingly.

83. In the result, all the appeals of the assessee and revenue stand partly allowed for statistical purposes.

Pronounced in open Court on 10th February, 2016.

 

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