CHUNILAL P. MALI, MUMBAI v. ACIT (OSD I), CEN RG-7, MUMBAI

ITA 1483/MUM/2010 | 2005-2006
Pronouncement Date: 18-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 148319914 RSA 2010
Assessee PAN AAHPM6078R
Bench Mumbai
Appeal Number ITA 1483/MUM/2010
Duration Of Justice 1 year(s) 24 day(s)
Appellant CHUNILAL P. MALI, MUMBAI
Respondent ACIT (OSD I), CEN RG-7, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 18-03-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 18-03-2011
Date Of Final Hearing 01-03-2011
Next Hearing Date 01-03-2011
Assessment Year 2005-2006
Appeal Filed On 24-02-2010
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH MUMBAI BEFORE SHRI N.V.VASUDEVAN (JM) AND SHRI RAJENDRA S INGH(AM) ITA NO.1483/M/2010 ASSESSMENT YEAR 2005-06 ITA NO.1484/M/2010 ASSESSMENT YEAR 2006-07 ITA NO.1485/M/2010 ASSESSMENT YEAR 2007-08 MR. CHUNILAL P. MALI THE CIT C.R.7 413 AAYAKAR BHAVAN 21 ASHISH INDUSTRIAL ESTATE M.K. ROAD MUMBAI 4 00 020. GOKHALE ROAD (S) DADAR (WEST) MUMBAI 400 025. PAN : AAHPM6078R APPELLANT RESPONDENT ASSESSEE BY : SHRI VINAYAK PANDYA & SHRI GIRISH DAVE REVENUE BY : SHRI NARENDER SINGH O R D E R PER RAJENDRA SINGH (AM) THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST COMMON ORDER DATED 8.1.2010 OF CIT(A) FOR THE ASSESSMENT YEARS 2005-06 TO 2007-08. AS THERE ARE COMMON DISPUTES INVOLVED IN THESE APPEALS THESE AR E BEING DISPOSED OFF BY A SINGLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIEN CE. THE COMMON DISPUTES RELATE TO COMPUTATION OF UNACCOUNTED SALES BASED ON THE FIGURES FOR THE SUBSEQUENT YEAR; ADDITIONS ON ACCOUNT OF GP RATE AN D NOT NP RATE; ADDITION ON 2 ACCOUNT OF UNEXPLAINED INVESTMENT; AND LEVY OF INTE REST UNDER SECTION 234B 234C & 234D. 2. BEFORE WE PROCEED TO DEAL WITH THE SPECIFIC DIS PUTES IT WILL BE APPROPRIATE TO GIVE A BRIEF BACKGROUND OF THE CASE. THE ASSESSEE BELONGS TO MALI GROUP WHICH DEALS IN READYMADE GARMENTS SUCH A S SHIRTS KIDS-WEAR SHERWANI ETC AND IS CONTROLLED BY SHRI SHANKARLAL P . MALI THE ELDER BROTHER OF THE ASSESSEE. THE GROUP IS ENGAGED IN THE MANUFACTU RING AS WELL AS TRADING OPERATIONS. THE MANUFACTURING ACTIVITY INVOLVED PRO CURING MATERIAL FROM SUPPLIERS AND CUTTING THE SAME ACCORDING SIZE BY TH E MASTER TAILORS. THE CUT PIECES ARE THEN SENT FOR EMBROIDERY SCREEN PRINT E TC AND THEREAFTER FOR STITCHING AND WASHING AND THEN THE PRODUCTS ARE PAC KED AND ARE READY FOR SALE. THE MANUFACTURING AND TRADING ACTIVITIES ARE CARRIE D OUT IN THE INDIVIDUAL NAME OF THE BROTHERS IN PROPRIETARY CONCERNS AS PER DETA ILS GIVEN BELOW : (I) SHANKARLAL P. MALI PROP. SHREE SUNDHA MAA ENTERPRI SES THE BUSINESS CONSISTS OF MANUFACTURING OF READYMADE GARMENTS. THE ASSESSEE IS CARRYING ON BUSINESS FROM 22 ASHIS H INDUSTRIAL ESTATE GOKHALE ROAD SOUTH DADAR (W) MUMBAI -25. THEY ARE MANUFACTURING SHIRTS FOR ADULTS AND BOYS. (II) PRAKASH P. MALI PROP. HUNCTION THE ASSESSEE IS WHOLESALE TRADER IN READYMADE SHIRT S. THE BUSINESS IS CARRIED ON FROM 33 ASHISH INDUSTRIAL E STATE GOKHALE ROAD SOUTH DADAR (W) MUMBAI -25. (III) CHUNILAL P. MALI PROP. STATION 3 THE ASSESSEE IS TRADING IN ALL KINDS OF SHIRTS AND T-SHIRTS. THE BUSINESS IS CARRIED ON FROM SHOP NO.3 526 RAMKUTI R BLDG. 33 RD ROAD KHAR (W) MUMBAI -52. (IV) BHARAT (BHAGARAM) P. MALI PROP. TEE ENTERPRISES THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING RE ADYMADE GARMENTS. THE BUSINESS IS CARRIED ON FROM 15 ADARS H INDUSTRIAL ESTATE GOKHALE ROAD SOUTH DADAR(W) MUMBAI-25. 3. THERE HAVE BEEN ALLEGATIONS AGAINST THE GROUP RE CEIVED BY THE INCOME- TAX DEPARTMENT THAT THE GROUP WAS NOT DECLARING THE PROFIT EARNED CORRECTLY IN THE RETURNS OF INCOME. ONE OF THE MAIN ALLEGATIONS WAS THAT THE GROUP WAS DISPATCHING GOODS TO VARIOUS PARTIES ON THE BASIS O F ESTIMATE NOTES WHICH WERE ONLY PARTLY RECORDED IN THE BOOKS OF ACCOUNT. SECON D MAIN ALLEGATION WAS THAT THE ASSESSEE HAD BEEN DISPATCHING GOODS TO VARIOUS PARTIES ON THE BASIS OF BILLS RAISED IN THE NAMES OF VAKRATUNDA ENTERPRISES MAHA VIR IMPEX ETC. WHICH WERE NOT REFLECTED IN THE BOOKS OF ACCOUNTS MAINTAINED. THERE WERE ALSO ALLEGATIONS THAT THE ASSESSEE WAS MAINTAINING TWO SETS OF BOOK S OF ACCOUNT AND THE UNACCOUNTED TRANSACTIONS WERE SEPARATELY ENTERED ON NOTE BOOK DIARIES ETC. WHICH WERE NOT ACCOUNTED. A SEARCH WAS THEREFORE CO NDUCTED UNDER SECTION 132 OF THE INCOME-TAX ACT IN CASE OF THE GROUP ON 28.6. 2006 WHICH ALSO INCLUDED THE BUSINESS AND RESIDENTIAL PREMISES OF THE ASSESS EE. FROM THE PREMISES OF THE ASSESSEE CASH OF ONLY RS.1125 WAS FOUND. HOWEVE R SUBSTANTIAL UNACCOUNTED SALES AND PURCHASES WERE ALSO FOUND. TH E POSITION REGARDING UNACCOUNTED SALES AND PURCHASES AS WELL AS THE ACCO UNTED SALES IN CASE OF THE ASSESSEE WERE AS UNDER : 4 A.Y ACCOUNTED SALES UNACCOUNTED SALES UNACCOUNTED PURCHASES 2005-06 9 83 254 NIL NIL 2006-07 15 10 348 73 88 668 66 02 849 2007-08 19 20 372 42 64 419 19 73 920 4. THE AO NOTED FROM THE ABOVE DETAILS THAT IN A.Y. 2006-07 83% OF SALES WERE UNACCOUNTED AND IN A.Y.2007-08 69% OF THE SAL ES WERE UNACCOUNTED. THESE FACTS SHOWED THAT THE ASSESSEE WAS REGULARLY ENGAGED IN UNACCOUNTED TRANSACTIONS. AO THEREFORE CONCLUDED THAT THE ASSES SEE MUST HAVE ENGAGED IN SIMILAR UNACCOUNTED BUSINESS ACTIVITY IN A.Y.2005-0 6 ALSO. THE ASSESSEE IN THE A.Y.2005-06 HAD DECLARED SALES OF ONLY RS.9 83 254/ -. ON THE BASIS OF MATERIAL FOUND IN A.Y.2006-07 THE AO TREATED THE SALES DECLA RED BY THE ASSESSEE IN A.Y.2005-06 AS ONLY 17% OF TOTAL SALES. THE AO THUS COMPUTED THE TOTAL SALES FOR A.Y.2005-06 AT RS.57 83 847/- CONSISTING OF ACC OUNTED SALES OF RS.9 83 254/- (17% ) AND UNACCOUNTED SALES OF RS.48 00 641/- (83%). TH E ASSESSEE HAD DECLARED GP RATE OF 19.90% FOR A.Y.299 5-06. THE AO THEREFORE COMPUTED GP IN RESPECT OF UNACCOUNTED SALES @ 19.90 % WHICH CAME TO RS.9 55 322/- WHICH WAS ADDED AS UNDISCLOSED INCOME OF THE ASSESSEE FROM THE UNACCOUNTED SALES. 4.1 IN ASSESSMENT YEAR 2006-07 THE ASSESSEE HAD DEC LARED GP RATE OF 18.05% . THEREFORE THE AO COMPUTED GP IN RESPECT OF UNACCO UNTED SALES OF RS.73 88 668/- @ 18.05% WHICH CAME TO RS.13 67 886/ - WHICH WAS ADDED AS UNDISCLOSED INCOME FOR A.Y.2006-07. IN ASSESSMENT Y EAR 2007-08 THE TOTAL SALES AS MENTIONED IN CHART WAS RS.61.84 791/-. THE AO FOLLOWING THE MATERIAL 5 FOUND IN A.Y.2006-07 TREATED 83% OF SALES AS UNACCO UNTED WHICH WAS COMPUTED AT RS.51 33 376/-. SINCE THE ASSESSEE HAD DISCLOSED GP RATE OF 20.17% FOR A.Y.2007-08 THE ASSESSEE DETERMINED THE GP FROM UNACCOUNTED SALES AT RS.10 29 375/- AND ADDED TO THE TOTAL INCO ME. 5. THE FIRST DISPUTE WHICH HAS BEEN RAISED IN ALL THE YEARS IS REGARDIN G ESTIMATION OF UNACCOUNTED SALE. IT IS HOWEVER FOUND THAT THE AO HAD ESTIMATED UNACCOUNTED SALES ONLY IN A.Y.2005-06 AND 2007-08. IN A.Y.2006-07 UNACCOUNTED SALES FOUND FROM THE SEIZED DOCUMENT HA D BEEN ACCEPTED. THE AO TOOK THE VIEW THAT UNACCOUNTED SALES COULD BE ESTIM ATED ON THE BASIS OF MATERIAL FOUND FOR THE SUBSEQUENT PERIOD OR THE PRI OR PERIOD. THE AO PLACED RELIANCE ON THE FOLLOWING JUDGMENTS IN SUPPORT OF T HE CASE: (I) 248 ITR 310 (BOMBAY) IN CASE OF CIT VS DR. MKE MEMO N (II) 251 ITR 561 RAJNIK & CO. VS CIT (III) 56 ITD 67 IN CASE OF OVERSEAS CHINESE CUISINE (IV) 64 TTJ 543 (AHD) IN CASE OF KISHORE MOHAN LAL TELWA LA VS ACIT (V) 90 ITR 271(SC) CST VS HM ESUFALI AND OTHERS 5.1 THE ASSESSEE DISPUTED THE DECISION OF AO TO EST IMATE UNACCOUNTED SALES AS WELL AS TO MAKE ADDITIONS ON ACCOUNT OF GP. IN RELATION TO ESTIMATION OF SALES FOR A.Y.2005-06 IT WAS SUBMITTED THAT ESTIMA TION OF UNACCOUNTED SALES BASED ON MATERIAL IN THE SUBSEQUENT PERIOD WAS NOT JUSTIFIED. IT WAS POINTED OUT THAT IN THE EARLIER YEARS ALSO SURVEY HAD BEEN MADE AND NO UNACCOUNTED SALES HAD BEEN FOUND. IT WAS ALSO POINTED OUT THAT THE MANUFACTURING ACTIVITIES OF THE ASSESSEE WERE SUBJECT TO CONTROL BY EXCISE A UTHORITIES WHO HAD NOT FOUND ANY INCRIMINATING MATERIAL. THEREFORE NO ESTIMATION OF UNACCOUNTED SALES COULD 6 BE MADE. CIT(A) HOWEVER DID NOT ACCEPT THE CONTENT IONS RAISED. IT WAS OBSERVED BY HIM THAT THE GROUP HAD CONSISTENTLY RES ORTED TO UNACCOUNTED TRANSACTIONS. THE MATERIAL FOUND DURING SEARCH SHOW ED THAT THE ASSESSEE INDULGED IN REGULAR UNACCOUNTED SALES IN A.Y.2006-0 7 AND 2007-08 AND THEREFORE THERE WERE NO REASON TO BELIEVE THAT THE ASSESSEE WOULD NOT SHOW SIMILAR CONDUCT IN A.Y.2005-06. IT WAS OBSERVED BY HIM THAT THE MATERIAL FOUND DURING THE SEARCH JUSTIFIED THE APPROACH OF THE AO TO CONCLUDE THAT THERE WERE CONTINUED SUPPRESSION OF SALES AND THEREFORE ESTIM ATION MADE OF UNACCOUNTED SALES FOR A.Y.2005-06 BASED ON THE MATERIAL FOUND F OR THE SUBSEQUENT PERIOD WAS JUSTIFIED. 5.2 CIT(A) ALSO OBSERVED THAT IN VIEW OF UNACCOUNTE D PURCHASES SALES AND EXPENSES DETECTED DURING SEARCH THE BOOKS OF ACCOU NT OF THE ASSESSEE COULD NOT BE TAKEN AS RELIABLE AND HAVE TO BE REJECTED UN DER SECTION 145 OF THE INCOME-TAX ACT. IT WAS HELD THAT THE AO HAD RIGHTLY ESTIMATED THE UNACCOUNTED SALES FOR A.Y.2005-06 BASED ON THE MATERIAL FOUND D URING SEARCH RELATING TO THE A.Y.2006-07 AND 2007-08. HE THEREFORE CONFIRMED THE ESTIMATION OF SALES MADE BY THE AO FOR A.Y.2005-06. THE DECISION OF THE AO REGARDING DETERMINATION OF UNACCOUNTED SALES IN OTHER YEARS W AS ALSO UPHELD. AGGRIEVED BY THE SAID DECISION THE ASSESSEE IS IN APPEAL. 5.3 BEFORE US THE LEARNED AR FOR THE ASSESSEE SUBMI TTED THAT DURING THE SEARCH A DIARY MARKED AS A-VI HAD BEEN FOUND WHICH CONTAINED ENTRIES ONLY FROM 1.10.2005 TO 27.6.2006. THE UNACCOUNTED TRANSA CTIONS WERE THUS FOUND ONLY FOR THE LIMITED PERIOD WHICH RELATED TO A.Y.20 06-07 AND 2007-08. IT WAS ALSO SUBMITTED THAT THE BUSINESS OF THE ASSESSEE HA D STARTED ONLY IN SEPTEMBER 2004. HE REFERRED TO THE COPY OF SALES TAX REGISTRA TION DATES 13.9.2004 AND 7 CST REGISTRATION DATED 13.9.2004 A COPY OF WHICH WA S PLACED AT PAGE 10 OF THE PAPER BOOK. IT WAS THUS CLEAR THAT THE BUSINESS HAD STARTED ONLY FROM SEPTEMBER 2004. THE AO HOWEVER ESTIMATED UNACCOUNT ED SALES FOR THE WHOLE YEAR WHEN THERE WAS NO MATERIAL FOUND DURING THE SE ARCH. IT WAS ALSO SUBMITTED THAT IN THE EARLIER YEARS NO ADDITIONS H AD BEEN MADE IN CASE OF THE ASSESSEE AND THE INCOME RETURNED HAD BEEN ACCEPTED FROM A.Y.2001-02 TO 2004-05. IT WAS ACCORDINGLY URGED THAT NO UNACCOUNT ED SALES COULD BE ESTIMATED NOR ANY ADDITION COULD BE MADE ON THIS AC COUNT AS NO MATERIAL HAD BEEN FOUND FOR A.Y.2005-06. RELIANCE WAS PLACED ON THE FOLLOWING JUDGMENTS IN SUPPORT OF THE CASE. I) 117 TAXMAN 577 (BOMBAY) IN CASE OF CIT VS CJ SHA H & CO. II) 116 TAXMAN 838 (ALL) IN CASE OF CIT VS SMT. USH A TRIPATHI III) 29 SOT 53 (AHD) IN CASE OF DCIT VS ROYAL MARWA R TOBACCO PRODUCTS P.LTD. 5.4 THE LEARNED DR ON THE OTHER HAND STRONGLY SUPP ORTED THE ORDER OF CIT(A). IT WAS POINTED OUT THAT ESTIMATE OF UNACCOU NTED SALES HAD BEEN MADE ON THE BASIS OF MATERIAL FOUND DURING THE SEARCH AN D IN CASE THE ASSESSEE WAS FOUND MAKING ACCOUNTED THE SALES IN THOSE YEARS TH ERE WAS NO REASON WHY IT WOULD NOT HAVE DONE SO IN A.Y.2005-06 ALSO. HE PLAC ED RELIANCE ON THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF H M ES UFALI & OTHER (90 ITR 271). 5.5 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ESTIMATION OF U NACCOUNTED SALES BASED ON THE MATERIAL FOUND IN OTHER YEARS. A SEARCH WAS CON DUCTED IN CASE OF THE 8 ASSESSEE DURING THE COURSE OF WHICH SOME DOCUMENTS WERE FOUND SHOWING UNACCOUNTED SALES OF RS.73 88 668/- AND RS.42 64 41 9/- FOR A.YRS.2006-07 AND 2007-08 RESPECTIVELY. NO MATERIAL SHOWING UNACC OUNTED SALES FOR A.Y.2005-06 WAS FOUND. THE AO HOWEVER ON THE BASIS OF MATERIAL FOUND FOR A.Y.2006-07 WHICH SHOWED THAT UNACCOUNTED SALES WER E 83% OF TOTAL SALES AND ACCOUNTED SALES WERE ONLY 17% TREATED THE SALES DEC LARED BY THE ASSESSEE FOR ASSESSMENT YEAR 2005-06 ONLY @ 17% OF TOTAL SALES. HE THUS ESTIMATED TOTAL SALES FOR A.Y.2005-06 AT RS.57 83 847/- WHICH INCLU DED UNACCOUNTED SALES OF RS.48 00 641/-. IN A.Y.2007-08 THE ASSESSEE HAD DEC LARED SALES OF RS.19 20 372/- AND UNACCOUNTED SALES FOUND FROM THE SEIZED DOCUMENTS WERE TO THE TUNE OF RS.42 61 419/- TAKING THE TOTAL SALE S FIGURE AT RS.61 84 791/-. THE AO HOWEVER ESTIMATED THE UNACCOUNTED SALES FOR A.Y.2007-08 ON THE BASIS OF PERCENTAGE OF UNACCOUNTED SALES I.E. 83% FOUND F OR A.Y.2006-07. HE THUS DETERMINED THE UNACCOUNTED SALES FOR A.Y.2007-08 AT 83% OF TOTAL SALES WHICH GAVE THE FIGURE OF RS.51 33 376/-. CIT(A) UPHELD TH E VIEW OF THE AO THAT UNACCOUNTED SALES COULD BE ESTIMATED ON THE BASIS O F MATERIAL FOUND IN OTHER YEARS. THE DECISION OF THE CIT(A) HAS BEEN CHALLENG ED BEFORE US. 5.6 WE HAVE CAREFULLY CONSIDERED THE VARIOUS ASPECT S OF THE MATTER INCLUDING THE JUDICIAL PRONOUNCEMENTS CITED BY BOTH THE PARTI ES. IN OUR VIEW EACH ASSESSMENT YEAR IS AN INDEPENDENT ASSESSMENT YEAR A ND UNLESS SOME MATERIAL IS FOUND FOR THAT YEAR SHOWING SOME UNACCOUNTED SAL E ESTIMATION OF UNACCOUNTED SALES FOR THAT YEAR BASED ON THE MATERI AL FOUND IN OTHER YEARS WILL NOT BE JUSTIFIED. IN CASE THE ASSESSEE HAD REALLY I NDULGED INTO UNACCOUNTED SALES IN A.Y.2005-06 THERE WOULD HAVE DEFINITELY BE EN SOME MATERIAL FOUND SHOWING UNACCOUNTED SALES FOR THAT YEAR ALSO AS BOT H THE RESIDENTIAL AND OFFICE PREMISES OF THE ASSESSEE HAD BEEN SEARCHED. MOREOVE R WE ALSO NOTE THAT 9 UNACCOUNTED SALES FOR A.Y.2006-07 HAD BEEN FOUND ON LY FROM 1.10.2005 TO 31.3.2006 AND AO HAD ACCEPTED THE UNACCOUNTED SALES FOUND ON THE BASIS OF MATERIAL FOUND AND HAD NOT ESTIMATED ANY ACCOUNTED SALE FOR THE REMAINING PERIOD OF A.Y.2006-07 I.E. FROM 1.4.2005 TO 30.9.20 05. THEREFORE ESTIMATION OF UNACCOUNTED SALES FOR THE PERIOD OF EVEN BEFORE 1.4 .2005 CANNOT BE JUSTIFIED. THE LEARNED DR HAS RELIED UPON THE JUDGMENT OF HON BLE SUPREME COURT IN CASE OF H.M. ESUFALI AND OTHERS (90 ITR 271). ON P ERUSAL OF THE SAID JUDGMENT WE FIND THAT FOR THE ACCOUNTING PERIOD 1.11.59 TO 2 0.10.60 THE ASSESSEE HAD DISCLOSED TURNOVER OF RS.3 97 356/- AND TAXABLE TUR NOVER OF RS.1 10 246/- FOR THE PURPOSE OF SALES TAX. THERE WAS INSPECTION BY S ALES TAX AUTHORITIES ON 19.9.63 AND A BILL BOOK WAS FOUND FOR 19 DAYS FROM 1.9.60 TO 19.9.60 SHOWING THAT SALES OF RS.31 171.28 WERE NOT RECORDED. ON TH AT BASIS THE AO ESTIMATED UNACCOUNTED SALES FOR THE ENTIRE YEAR AT RS.2.50 LA CS UNDER THE STATE SALES TAX ACT AND RS.1 LAC UNDER THE CENTRAL SALES TAX ACT. T HE HONBLE SUPREME COURT UPHELD THE ESTIMATION OF SALES MADE BY THE SALES TA X AUTHORITIES. IT MAY BE NOTED THAT ESTIMATION OF TURNOVER HAD BEEN MADE FOR THE YEAR FOR WHICH THE MATERIAL HAD BEEN FOUND AND NOT ON THE BASIS OF MAT ERIAL FOUND FOR OTHER YEARS. THEREFORE THE SAID JUDGMENT DOES NOT HELP THE CASE OF THE REVENUE THAT UNACCOUNTED SALES CAN BE ESTIMATED ON THE BASIS OF MATERIAL FOUND FOR SOME OTHER YEARS. THERE ARE HOWEVER JUDGMENTS WHICH SUPP ORT THE CASE OF THE ASSESSEE THAT UNDISCLOSED SALES OR INCOME CANNOT BE ESTIMATED FOR THE PERIOD FOR WHICH THERE WERE NO MATERIAL FOUND. IN CASE OF CIT VS CJ SHAH & CO. (117 TAXMAN 577) RELIED UPON BY THE ASSESSEE THE SEIZED MATERIAL HAD INDICATED UNACCOUNTED SALE FOR THE PERIOD 3.9.96 TO 4.12.96 I .E. FOR THE THREE MONTH PERIOD. THE AO ON THAT BASIS HAD ESTIMATED UNDISCLO SED PROFIT FOR THE ENTIRE BLOCK PERIOD AT RS.3.40 CRORES. THE TRIBUNAL HOWEVE R DELETED THE ADDITION ON THE GROUND THAT THERE WAS NO MATERIAL FOUND INDICAT ING UNDISCLOSED SALE FOR THE 10 PERIOD PRIOR TO THE THREE MONTHS PERIOD. THE ORDER OF TRIBUNAL WAS UPHELD BY THE HIGH COURT. SIMILARLY IN CASE OF CIT VS SMT. US HA TRIPATHI (116 TAXMAN 838) THE HONBLE HIGH COURT HELD THAT THE AO WAS NO T JUSTIFIED IN ESTIMATING UNDISCLOSED INCOME FOR THE PERIOD FOR WHICH THERE W ERE NO DETAILS IN ANY OF THE SEIZED MATERIALS. THE LEARNED AR FOR THE ASSESSEE H AS ALSO RELIED ON THE DECISION OF THE TRIBUNAL IN CASE OF DCIT VS ROYAL M ARWAR TOBACCO PRODUCTS PVT. LTD. (29 SOT 53). IN THAT CASE THE SEARCH HAS RESUL TED INTO MATERIAL SHOWING SUPPRESSED SALES FOR A.Y.2004-05 BUT THERE WAS NO M ATERIAL FOR 2001-02 TO 2003-04. THE AO HAD HOWEVER ESTIMATED SUPPRESSED SA LES FOR A.Y.2001-02 TO 2003-04 BASED ON THE MATERIAL FOR A.Y.2004-05 IN AS SESSMENTS MADE UNDER SECTION 153A. THE TRIBUNAL HELD THAT THERE WAS NO M ATERIAL FOUND FOR THE EARLIER YEARS AND THERE WAS ALSO NO DEFECT IN THE BOOKS AND THEREFORE ADDITION IN THE EARLIER YEARS WAS NOT JUSTIFIED. THEREFORE IN OUR V IEW ESTIMATION OF UNACCOUNTED SALES FOR A.Y.2005-06 IS NOT JUSTIFIED AND ORDER OF CIT(A) ON THIS POINT IS SET ASIDE AND ADDITION MADE ON THIS ACCOUNT IS DELETED. 5.7 INSOFAR AS A.Y. 2007-08 IS CONCERNED THE UNACCO UNTED SALES FOUND FROM THE SEIZED MATERIAL WAS RS.42 64 419/- BUT THE AO E STIMATED UNACCOUNTED SALES AT RS.51 33 376/- ON THE BASIS OF PERCENTAGE OF UNACCOUNTED SALES FOUND FOR A.Y.2006-07. IN OUR VIEW ESTIMATION MADE BY THE AO CANNOT BE JUSTIFIED. THE UNACCOUNTED SALES ACTUALLY FOUND FROM THE SEIZE D DOCUMENTS HAS TO BE CONSIDERED AS UNACCOUNTED SALES. THE SAME APPROACH HAVE BEEN ADOPTED BY THE AO IN A.Y.2006-07 IN WHICH UNACCOUNTED SALES AC TUALLY FOUND FROM SEIZED DOCUMENTS HAD BEEN ACCEPTED. IT CANNOT BE SAID THAT THE ASSESSEE WAS MAKING UNACCOUNTED SALES EXACTLY IN THE SAME PROPORTION IN ALL THE YEARS. THE UNACCOUNTED SALES ACTUALLY FOUND FROM THE SEIZED MA TERIAL HAVE TO BE ASSESSED AS SUCH. THEREFORE THE UNACCOUNTED SALES HAVE TO BE ACCEPTED AT 11 RS.42 64 419/- THE ORDER OF CIT(A) IS SET ASIDE ON THIS POINT AND THE UNACCOUNTED SALES AT RS.42 61 419/- FOUND FROM THE SEIZED DOCUMENT ARE ACCEPTED. 6. THE SECOND DISPUTE WHICH IS COMMON TO ALL THE Y EARS IS REGARDING ADDITION OF GROSS PROFIT (GP) FROM THE UNACCOUNTED SALES. THE ASSESSEE DISPUTED THE DECISION OF AO TO MAKE ADDITION BASED ON GP FROM THE UNACCOUNTED SALES. THE ASSESSEE SUBMITTED BEFORE CI T(A) THAT IT WAS DEALING WITH GOODS MEANT FOR LOWER MIDDLECLASS PEOPLE AND T HEREFORE THE PRICES HAD TO BE KEPT LOW AS A RESULT OF WHICH THERE WAS A WIDE G AP BETWEEN GP RATE AND NP RATE. IT WAS POINTED OUT THAT GP RATE WAS 19.54% WH ERE THE AVERAGE NP WAS 2.82%. THEREFORE ADDITION BASED ON GP WAS NOT JUSTI FIED. THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING JUDGMENTS IN SUPPORT OF T HE PLEA FOR ADDITION SHOULD BE BASED ON NET PROFIT AND NOT ON GP. (I) 158 CTR 372 (GUJ) IN CASE OF CT VS PRESIDENT INDUST RIES (II) 304 ITR 52 (MP) IN CASE OF MANMOHAN SADANI VS CIT (III) 263 ITR 610 (MP) IN CASE OF CIT VS BALCHAND AJITKUM AR (IV) 148 CTR 327 (KERALA) IN CASE OF CIT VS S P NAYAK RA MESH M. SHREEGANESH TRANSPORT (V) 254 ITR 259 (SC) IN CASE OF SARASWATI OIL TRADERS V S CIT 6.1 CIT(A) WAS HOWEVER DID NOT ACCEPT THE EXPLANATI ON GIVEN BY THE ASSESSEE. IT WAS OBSERVED BY HIM THAT THE NET PROFI T WAS COMPUTED AFTER TAKING INTO ACCOUNT MANY INDIRECT EXPENSES SUCH AS BUSINES S PROMOTION COMMISSION ETC. WHICH FLUCTUATED WIDELY AND THEREFORE NET PROF IT WAS NOT STABLE AND THUS NOT SUITABLE FOR COMPARISON. THE GP HOWEVER WAS BAS ED ON STABLE PARAMETERS 12 AND THEREFORE IT WAS SUITED FOR THE PURPOSE OF COMP ARATIVE STUDY. HE PLACED RELIANCE ON THE FOLLOWING JUDGMENTS IN SUPPORT OF G P BASED ADDITIONS. (I) 132 ITR 640 (ORISSA) IN CASE OF RATANLAL OMPRAKASH VS CIT (II) 248 ITR 47 (GUWAHATI) IN CASE OF KESARICHAND JAISUK HLAL VS CIT (III) 167 ITR 561 (MP) IN CASE OF ORCHHA TRANSPORT CO. VS CIT CIT(A) THUS CONFIRMED THE ADDITION MADE BY AO BASE D ON GP FOR ALL THE YEARS AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6.2 BEFORE US THE LEARNED AR FOR THE ASSESSEE REITE RATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES THAT ADDITION COULD B E MADE ON ACCOUNT OF NET PROFIT ONLY AS INDIRECT EXPENSES HAVE ALSO TO BE AL LOWED. IT WAS POINTED OUT THAT INDIRECT EXPENSES WERE ALSO FOUND MENTIONED IN THE DIARY AND THEREFORE IF DIARY WAS TO BE ACTED UPON THESE EXPENSES SHOULD ALSO BE CONSIDERED. 6.3 THE LEARNED DR ON THE OTHER HAND SUPPORTED THAT ADDITION MADE ON THE BASIS OF GP WAS JUSTIFIED AS EXPENSES MUST HAVE BEE N CONSIDERED BY THE ASSESSEE AGAINST THE ACCOUNTED SALES. SECONDLY EVEN IF THE EXPENSES WERE CONSIDERED SINCE THE SOURCE WAS NOT ACCOUNTED THE SAME HAD TO BE ADDED AS UNACCOUNTED EXPENDITURE. THE LEARNED DR ALSO SUBMIT TED THAT IT WOULD HAVE BEEN APPROPRIATE IF PEAK OF PURCHASES SALES AND UN ACCOUNTED EXPENSES HAD BEEN PREPARED AND ADDED WHICH HAD NOT BEEN DONE IN THIS CASE. IN REPLY THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT PEAK ISS UE WAS NEITHER BEFORE AO NOR CIT(A) AND THEREFORE COULD NOT BE RAISED NOW. T HE ONLY ISSUE WAS WHETHER ADDITION SHOULD BE GP BASED OR NP BASED. IT WAS POI NTED OUT THAT DETAILS OF EXPENSES WERE AVAILABLE IN THE DIARY. AS REGARDS TH E SOURCE IT WAS SUBMITTED 13 THAT EVEN IN UNACCOUNTED TRANSACTIONS THERE WERE OP ENING BALANCES WHICH SHOWED THAT FUNDS WERE AVAILABLE. 6.4 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE RAISED IS REGARDING ESTIMATI ON OF PROFIT FROM UNACCOUNTED SALES. THE AO HAD ESTIMATED THE GROSS PROFIT FROM U NACCOUNTED SALES ON THE BASIS OF GROSS PROFIT RATE RETURNED BY THE ASSESSEE IN RESPECT OF ACCOUNTED SALES. THE ENTIRE GROSS PROFIT HAD BEEN TREATED BY THE ASSESSEE AS UNDISCLOSED INCOME FROM UNACCOUNTED SALES AND NO FURTHER EXPENS ES HAD BEEN ALLOWED. THE CASE OF THE ASSESSEE IS THAT ONLY THE NET PROFIT FR OM THE UNACCOUNTED SALES HAS TO BE ADDED AS FROM THE GROSS PROFIT OTHER EXPENSES INCURRED HAVE TO BE DEDUCTED. IT HAS BEEN POINTED OUT THAT ALONG WITH U NACCOUNTED SALE UNACCOUNTED EXPENDITURE HAD ALSO BEEN FOUND FROM TH E SEIZED DIARY WHICH HAS TO BE ALLOWED. RELIANCE HAS BEEN PLACED ON THE JUDG MENT OF HONBLE HIGH COURT OF KERALA IN CASE OF CIT VS S.P.NAYAK RAMESH M. SHR EEGANESH TRANSPORT (148 CTR 327) AND SOME OTHER JUDGMENTS IN SUPPORT OF THE PLEA THAT WHEN GROSS RECEIPTS ARE TAXED CORRESPONDING EXPENDITURE HAS TO BE ALLOWED IF NECESSARY ON ESTIMATE IF THERE WERE NO EVIDENCE FOR EXPENDITURE. IN OUR VIEW WHETHER THE GROSS PROFIT SHOULD BE ADDED OR NET PROFIT SHOULD B E ADDED WILL DEPEND UPON FACTS AND CIRCUMSTANCES OF EACH CASE. WHEN UNACCOU NTED SALES HAVE BEEN FOUND THE GROSS PROFIT FROM UNACCOUNTED SALES HAS T O BE ESTIMATED WHICH IN THIS CASE HAS BEEN DONE ON THE BASIS OF GROSS PROFIT RAT E DECLARED IN CASE OF ACCOUNTED SALES. THEREAFTER THE ISSUE MAY ARISE WHE THER THE ENTIRE GROSS PROFIT RATE SHOULD BE ADDED OR THE EXPENSES WHICH WERE REQ UIRED TO BE INCURRED IN ADDITION TO PURCHASES SHOULD ALSO BE ALLOWED. IN CA SE SOME OTHER EXPENSES ARE REQUIRED TO BE INCURRED FOR EARNING THE INCOME THE SE OBVIOUSLY HAVE TO BE ALLOWED BUT THE FACTUAL POSITION IN THIS CASE IS TH AT THE EXPENDITURE WHICH HAD 14 BEEN FOUND FROM THE DIARY SEIZED ITSELF IS UNACCOUN TED. THEREFORE THE ENTIRE EXPENDITURE HAS TO BE FIRST ADDED AS UNACCOUNTED EX PENDITURE AND THEREAFTER THE EXPENDITURE HAS TO BE ALLOWED AS DEDUCTION RESU LTING INTO NO NET ADDITION ON THIS ACCOUNT. IT APPEARS FOR THIS REASON ONLY THE A O HAS NOT ALLOWED ANY FURTHER EXPENDITURE FROM THE GROSS PROFIT. THERE CAN ALSO B E A SITUATION WHERE SUCH EXPENDITURE HAS ALREADY BEEN ALLOWED AGAINST ACCOUN TED SALES AND THEREFORE IN SUCH CASES THE EXPENDITURE CANNOT BE ALLOWED AGAIN AGAINST THE UNACCOUNTED SALES. IN THE PRESENT CASE NO EXERCISE HAS BEEN UND ERTAKEN TO COMPARE WHETHER ANY OF THE EXPENDITURE FOUND AS PER DIARY H AD BEEN CLAIMED AGAINST THE ACCOUNTED SALES OR NOT. IN CASE SOME OF THE EXP ENDITURE HAS ALREADY BEEN CONSIDERED AGAINST THE ACCOUNTED SALES THESE OBVIO USLY CANNOT BE ALLOWED. AS REGARDS THE OTHER EXPENDITURE WHICH HAD NOT BEEN CL AIMED AGAINST THE ACCOUNTED SALES THE SAME HAS TO BE ALLOWED BUT THE SOURCE OF EXPENDITURE IS ALSO REQUIRED TO BE SEEN. IN CASE THE SOURCE IS NOT EXPLAINED THIS HAS TO BE ADDED AS UNEXPLAINED EXPENDITURE. THE LEARNED AR SU BMITTED THAT THE ASSESSEE HAD INCOME FROM THE UNACCOUNTED SALES TO E XPLAIN SUCH EXPENDITURE BUT THESE ASPECTS HAVE NOT BEEN GONE INTO BY THE AU THORITIES BELOW. WE THEREFORE SET ASIDE THE ISSUE OF ALLOWANCE OF ANY F URTHER EXPENDITURE FOUND FROM THE SEIZED DIARY AGAINST THE GROSS PROFIT TO T HE FILE OF AO FOR FRESH DECISION AFTER NECESSARY EXAMINATION IN THE LIGHT OF OBSERVA TIONS MADE ABOVE AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 7. THE THIRD DISPUTE WHICH IS RELEVANT ONLY TO A.Y. 2005-06 AND 2007-08 IS REGARDING ADDITION ON ACCOUNT OF UNEXPLAINED INVEST MENT UNDER SECTION 69A OF THE INCOME-TAX ACT. AS DISCUSSED EARLIER THE AO HAD COMPUTED THE TOTAL SALES INCLUDING UNACCOUNTED SALES FOR ASSESSMENT YEAR 200 5-06 AT RS.57 83 847/- WHICH GAVE AVERAGE MONTHLY SALES OF RS.4 81 987/-. AFTER EXCLUDING THE GP @ 15 19.90% THE AO COMPUTED THE COST OF MONTHLY SALES AT RS.3 86 072/-. THE AO OBSERVED THAT IN CLOTH MANUFACTURING BUSINESS THE C YCLE FROM RAW MATERIAL STAGE TO REALIZATION OF SALE WAS 3 4 MONTHS AND T HEREFORE THE ENTIRE MANUFACTURING EXPENSES FOR THE FIRST FOUR MONTHS MU ST HAVE BEEN MADE BY THE ASSESSEE FROM SOME UNDISCLOSED SOURCE. THE TOTAL IN VESTMENT REQUIRED FOR THE FIRST FOUR MONTHS WAS RS.15 54 288/- (3 86 072 X 4) . THE AO ALSO OBSERVED THAT THE FACTUM OF UNACCOUNTED INVESTMENT WAS CLEAR FROM THE MATERIAL FOUND DURING SEARCH SHOWING UNACCOUNTED PURCHASES FOR TWO YEARS I.E. A.YRS.2006-07 AND 2007-08. THE AO THEREFORE ADDED A SUM OF RS.15 44 288/- ON ACCOUNT OF UNEXPLAINED INVESTMENT IN A.Y.2005-06. 7.1. IN A.Y.2007-08 EXCESS STOCK OF RS.8 92 394/- H AD BEEN FOUND. THE AO NOTED THAT IN RESPONSE TO QUESTION NO.17 SHRI SURES H SOLANKI THE SALESMAN STATED THAT THE EXCESS STOCK REPRESENTED UNACCOUNTE D INCOME AND THAT UNACCOUNTED SALES WERE UTILIZED IN PURCHASE OF SAID STOCK. THE ASSESSEE HOWEVER IN THE RETURN OF INCOME DID NOT DISCLOSE TH E ABOVE EXCESS INCOME. IT WAS SUBMITTED BY THE ASSESSEE THAT THE SALESMAN HAD WRONGLY ADMITTED AND HE HAD NO AUTHORITY TO ADMIT ANY UNACCOUNTED INCOME. I T WAS ALSO SUBMITTED THAT THE ASSESSEE HAD ALREADY DISCLOSED INCOME OF RS. 5 LACS FOR UNEXPLAINED INVESTMENT IN STOCK AND RS.4 LACS AS ADDITIONAL INC OME FROM UNACCOUNTED SALES FOR A.Y.2006-07. THE ASSESSEE ALSO FILED A STOCK RE CONCILIATION STATEMENT. THE AO NOTED FROM THE SAID RECONCILIATION THAT THE DISC REPANCY WAS ONLY RS.67 646/- (8 92 394/- - 8 24 748/-). HE THEREFORE MADE THE ADDITION ONLY TO EXTENT OF RS.67 646/-. IN APPEAL CIT(A) CONFIRMED T HE ADDITION MADE BY THE AO ON ACCOUNT OF UNACCOUNTED INVESTMENT AGGRIEVED BY W HICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 16 7.2 BEFORE US THE LEARNED AR FOR THE ASSESSEE SUBM ITTED THAT NO ADDITION ON ACCOUNT OF ANY INCOME FROM UNACCOUNTED SALES COULD BE MADE IN A.Y.2005-06 AS THERE WAS NO MATERIAL FOUND FOR THAT PERIOD SHOW ING ANY UNACCOUNTED SALES. HIS ARGUMENT WAS SIMILAR TO THE ARGUMENT RELATED TO UNACCOUNTED SALES FOR A.Y.2006-07 AND ACCORDINGLY IT WAS SUBMITTED THAT A DDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT SHOULD BE DELETED. IT WAS PO INTED OUT THAT THE ASSESSEE HAD ALREADY MADE SOME DISCLOSURE ON ACCOUNT OF UNEX PLAINED INVESTMENT IN A.Y.2006-07 AND NO FURTHER ADDITION WAS REQUIRED. A S REGARDS UNACCOUNTED STOCK FOR A.Y.2007-08 IT WAS SUBMITTED THAT THE DIS CREPANCY HAD BEEN LARGELY RECONCILED AND ONLY A SMALL DISCREPANCY REMAINED. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ADDITION ON ACC OUNT OF UNEXPLAINED INVESTMENT ON THE BASIS OF MATERIAL FOUND DURING TH E SEARCH. AS DISCUSSED EARLIER MATERIAL HAD BEEN FOUND DURING THE SEARCH SHOWING UNACCOUNTED SALES FOR A.YRS.2006-07 AND 2007-08 AND ON THAT BASIS THE AO HAD ESTIMATED UNACCOUNTED SALES FOR A.Y.2005-06 AT RS.48 00 641/- AND TOTAL SALES HAD BEEN COMPUTED AT RS.57 83 847/- FROM WHICH THE AVERAGE M ONTHLY SALES WAS COMPUTED AT RS.4 81 987/-. THE COST OF MONTHLY SALE S WAS DETERMINED AT RS.3 86 072/- AFTER EXCLUDING THE GROSS PROFIT @ 19 .90%. THE AO ALSO OBSERVED THAT THE ASSESSEE WAS IN THE BUSINESS OF CLOTH MANU FACTURING AND THE BUSINESS CYCLE FROM MATERIAL STAGE TO REALIZATION OF SALES W AS 3 TO 4 MONTHS AND THEREFORE FOR 3 TO 4 MONTHS THE ASSESSEE HAD TO MAK E INVESTMENT FROM SOME UNDISCLOSED SOURCES. THEREFORE THE TOTAL INVESTMENT FOR THE FIRST 4 MONTHS WAS DETERMINED AT RS.15 54 288/- (3 86 072 X 4) AND WAS ADDED AS UNEXPLAINED INVESTMENT. WE HAVE ALREADY HELD THAT NO ADDITION O N ACCOUNT OF UNACCOUNTED 17 SALES HAS TO BE MADE IN A.Y.2005-06 AND THEREFORE A DDITION MADE ON ACCOUNT OF UNEXPLAINED INVESTMENT IN A.Y.2005-06 IS DELETED . HOWEVER SOME ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT HAS TO BE MADE IN A.Y.2006-07 IN WHICH UNACCOUNTED SALES WERE DETECTED AT RS.73 88 668/-. THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT ONLY PROFIT FROM THE UNACCO UNTED SALES HAD TO BE ADDED AND NOT ANY UNACCOUNTED INVESTMENT. WE ARE UN ABLE TO AGREE WITH THE SAID PROPOSITION. THE LEARNED AR HAS RELIED ON CERT AIN JUDGMENTS AS MENTIONED IN PARA 6 EARLIER BUT THE SAID JUDGMENTS ARE DISTIN GUISHABLE. IN THOSE CASES IT WAS HELD THAT UNLESS THERE WAS A FINDING THAT INVES TMENTS IN ACQUIRING GOODS SOLD UNACCOUNTED HAD BEEN UNDISCLOSED NO ADDITION O N ACCOUNT OF UNEXPLAINED INVESTMENT COULD BE ADDED. THESE CASES WOULD BE REL EVANT WHEN THE SALES ARE UNACCOUNTED BUT THE CORRESPONDING PURCHASES ARE ACC OUNTED. IN THE PRESENT CASE THERE IS NO DISPUTE THAT BOTH SALES AND PURCHA SES WERE UNACCOUNTED AND THEREFORE ADDITION IS REQUIRED TO BE MADE IN RESPEC T OF THE INITIAL INVESTMENT FOR DOING THE UNACCOUNTED BUSINESS BECAUSE ONCE THE SEL LING OF GOODS STARTS SUBSEQUENT PURCHASES CAN BE TAKEN AS EXPLAINED FROM THE UNACCOUNTED SALES. THEREFORE ADDITION ON ACCOUNT OF INITIAL INVESTMENT IN THE UNACCOUNTED BUSINESS IS REQUIRED TO BE MADE. THIS HAS TO BE ESTIMATED ON THE BASIS OF BUSINESS CYCLE VOLUME OF UNACCOUNTED SALES AS WELL AS THE PERIOD F OR WHICH UNACCOUNTED SALES WERE FOUND. THE AO HAD ADOPTED THE BUSINESS CYCLE O N 4 MONTHS WITHOUT ANY EXAMINATION AND WITHOUT OPPORTUNITY TO THE ASSESSEE AS SUBMISSION OF THE ASSESSEE ON THIS POINT ARE NOT AVAILABLE. WE THEREF ORE RESTORE THIS ISSUE TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSAR Y EXAMINATION AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 7.4 IN A.Y.2007-08 EXCESS STOCK OF RS.8 92 394/- HA D BEEN FOUND. THE ASSESSEE HOWEVER FILED RECONCILIATION STATEMENT SHO WING DISCREPANCY OF ONLY 18 RS.67 646/- AND CIT(A) THEREFORE CONFIRMED THE ADDI TION ONLY TO THAT EXTENT. SINCE THE DISCREPANCY OF RS.67 646/- COULD NOT BE E XPLAINED EVEN IN THE RECONCILED STATEMENT THE ADDITION OF RS .67 646/- IN A.Y.2007-08 IS JUSTIFIED. THE ORDER OF CIT(A) IS THEREFORE CONFIRMED ON THIS POINT. 8. THE FOURTH DISPUTE WHICH IS RELEVANT ONLY FOR A. Y.2007-08 IS REGARDING ADDITION OF RS.3 50 000/- ON ACCOUNT OF ADDITIONAL INCOME DISCLOSED BY THE ASSESSEE. THE ASSESSEES ELDER BROTHER SHRI SHANKAR LAL P. MALI HAD OFFERED ADDITIONAL INCOME OF RS.75 LACS FOR THE WHOLE GROUP WHICH INCLUDED RS.15 LACS IN THE NAME OF THE ASSESSEE IN THE STATEMENT DATED 29. 6.2006 UNDER SECTION 131 OF THE INCOME-TAX ACT. IN THE RETURN OF INCOME HOW EVER THE ASSESSEE HAD OFFERED ONLY RS.11.50 LACS. THE AO THEREFORE ADDED A SUM OF RS.3.5 LACS ON THIS ACCOUNT. IN APPEAL THE ASSESSEE SUBMITTED THAT FURT HER ADDITION WAS NOT JUSTIFIED AS TOTAL ADDITION AS UNDISCLOSED INCOME M ADE BY THE AO WAS MORE THAN RS.3.5 LACS. CIT(A) WAS HOWEVER NOT SATISFIED. IT WAS OBSERVED BY HIM THAT THE ASSESSEE DID NOT GIVE ANY SPECIFIC REASON WHY INCOME OFFERED HAD NOT BEEN DISCLOSED. IN THE STATEMENT UNDER SECTION 131 DATED 29.6.2006 THERE WAS SPECIFIC DISCLOSURE OF ADDITIONAL INCOME OF RS.15 L ACS AND IT WAS NOT EXPLAINED WHY THE SAME WAS REDUCED. CIT(A) THEREFORE CONFIRME D THE ORDER OF AO AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 8.1 BEFORE US THE LEARNED AR FOR THE ASSESSEE REIT ERATED THE EARLIER SUBMISSION THAT SINCE ADDITION MADE BY THE AO ON AC COUNT OF UNDISCLOSED INCOME WAS MORE THAN THE INCOME OFFERED NO FURTHER ADDITION WAS REQUIRED TO BE MADE. THE LEARNED DR ON THE OTHER HAND SUBMITTED THAT INCOME DECLARED IN THE STATEMENT HAD TO BE ADDED AS THERE WAS NO RETRA CTION FROM THE STATEMENT MADE EARLIER. 19 8.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ADDITION OF RS. 3 50 000/- ON ACCOUNT OF ADDITIONAL INCOME DISCLOSED BY THE ASSESSEE. THE EL DER BROTHER OF THE ASSESSEE SHRI SHANKERLAL P. MALI HAD OFFERED ADDITIONAL INCO ME OF RS.75 LACS FOR THE WHOLE GROUP IN THE STATEMENT DATED 29.6.2006 UNDER SECTION 131 AND THE SAID DISCLOSURE INCLUDED A SUM OF RS.15 LACS ON BEHALF O F THE ASSESSEE. THE ASSESSEE IN THE RETURN OF INCOME HOWEVER OFFERED ONLY RS.11. 50 LACS. THE AO THEREFORE ADDED A SUM OF RS.3.50 LACS WHICH IN APPEAL WAS CON FIRMED BY THE CIT(A). THE CASE OF THE ASSESSEE IS THAT SINCE THE ADDITION MAD E BY THE AO ON ACCOUNT OF UNDISCLOSED INCOME WAS MORE THAN THE INCOME OFFERED NO FURTHER ADDITION WAS REQUIRED TO BE MADE. WE FIND SUBSTANCE IN THE SUBMI SSION MADE BY THE ASSESSEE. IN CASE THE ASSESSEE HAD DECLARED A PARTI CULAR UNDISCLOSED INCOME AND THE SAME IS WITHIN THE ADDITION MADE BY THE AO IN THE ASSESSMENT ON ACCOUNT OF UNDISCLOSED INCOME THE ASSESSEE WILL BE JUSTIFIED IN NOT OFFERING THE INCOME DECLARED. THE AO IN THIS CASE HAS ALREADY AD DED A SUM OF RS.7 79 375/- AS UNDISCLOSED PROFIT FROM UNACCOUNTED SALES WHICH IS MORE THAN THE SHORTFALL OF RS.3.50 LACS IN THE INCOME DECLARED BY THE ASSESSEE . THEREFORE ANY FURTHER ADDITION OF RS.3.50 LACS IS NOT JUSTIFIED. WE HAVE ALREADY UPHELD THE ADDITION ON ACCOUNT OF RS.7 79 375/- MADE BY THE AO. HOWEVER IS SUE OF ALLOWANCE OF EXPENDITURE AGAINST THE GROSS PROFIT ESTIMATED HAS BEEN RESTORED TO THE AO AND THEREFORE IN THE FRESH ASSESSMENT IF ADDITION MADE IS MORE THAN RS.3.50 LACS THE ADDITION OF RS.3.50 LACS ON ACCOUNT OF ADDITION AL INCOME DECLARED WILL NOT BE REQUIRED. HOWEVER IN CASE THE FINAL ADDITION AS UN DISCLOSED INCOME IS FOUND TO BE LESS THAN RS.3.50 LACS THE BALANCE AMOUNT WILL B E REQUIRED TO BE ADDED. THE AO WILL ACT ACCORDINGLY. 20 9. THE LAST DISPUTE IS REGARDING LEVY OF INTEREST U NDER SECTION 234C 234D AND 234E. THE LEARNED AR FOR THE ASSESSEE ADMITTED THAT LEVY OF INTEREST WAS ONLY CONSEQUENTIAL. WE THEREFORE DIRECT THE AO TO R ECOMPUTE THE INTEREST AT THE TIME OF GIVING EFFECT TO THIS ORDER. 10. IN THE RESULT THE APPEALS OF THE ASSESSEE ARE P ARTLY ALLOWED IN TERMS OF THE ORDER ABOVE. 11. ORDER WAS PRONOUNCED IN THE OPEN COURT 18.03.20 11. SD/- SD/- ( N.V.VASUDEVAN ) (RAJENDR A SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 18.03.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) MUMBAI CONCERNED 4. THE CIT MUMBAI CITY CONCERNED 5. THE DR C BENCH ITAT MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI ALK