ALPESH B. GADA, BHIWANDI v. ITO ( CEN ), MUMBAI

ITA 895/MUM/2011 | 2006-2007
Pronouncement Date: 25-11-2011 | Result: Partly Allowed

Appeal Details

RSA Number 89519914 RSA 2011
Assessee PAN AAWPG2164M
Bench Mumbai
Appeal Number ITA 895/MUM/2011
Duration Of Justice 9 month(s) 25 day(s)
Appellant ALPESH B. GADA, BHIWANDI
Respondent ITO ( CEN ), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 25-11-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 25-11-2011
Date Of Final Hearing 03-11-2011
Next Hearing Date 03-11-2011
Assessment Year 2006-2007
Appeal Filed On 31-01-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH MUMBAI BEFORE SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER A ND SHRI V. DURGA RAO JUDICIAL MEMBER ITA NO. 893 894 895 896 & 1487/MUM./2011 (A.YS : 2003-04 2005-06 2006-07 2008-09 & 2007-0 8 ) MR. ALPESH B. GADA APPU TEXTILE MILLS 10/A-1 PI NO.501 GOPAL NAGAR KALYAN BIWANDI ROAD BHIWANDI PAN AAWPG2164M .. APPELLANT V/S INCOME TAX OFFICER (CENTRAL) PAWAR INDUSTRIAL ESTATE EDULJI ROAD CHARAI THANE .... RESPONDENT ITA NO. 897 898 1489/MUM./2011 (A.Y : 2006-07 2008-09 2007-08 ) K.K. TEX ENTERPRISES FLAT NO.24/2 PALS COMPOUND KALYAN ROAD BHIWANDI .. APPELLANT V/S INCOME TAX OFFICER (CENTRAL) PAWAR INDUSTRIAL ESTATE EDULJI ROAD CHARAI THANE .... RESPONDENT ASSESSEE BY : MR. VIJAY MEHTA REVENUE BY : MRS. USHA NAIR DATE OF HEARING 17.11.2011 DATE OF ORDER 25.11.2011 MR. ALPESH B. GADA K.K. TEX ENTERPRISES 2 O R D E R PER J. SUDHAKAR REDDY A.M. ALL THESE APPEALS ARE FILED BY TWO DIFFERENT ASSES SEES BELONGING TO THE SAME GROUP. AS THE ISSUES ARISING IN THESE APPEALS ARE COMMON FOR THE SAKE OF CONVENIENCE THE ARE HEARD TOGETHER AND ARE BEIN G DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. 2. LEARNED COUNSEL FOR THE ASSESSEE AS WELL AS LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE FACTS MATERIAL A ND THE ISSUES ARE IDENTICAL FOR ALL THE YEARS AND HENCE THE ISSUE IN ONE CASE MAY BE DECIDED AND THE RATIO OF THE DECISION MAY BE APPLIED IN OTHER CASES . BOTH THE PARTIES AGREE THAT THE APPEAL IN ITA NO.893/MUM./2011 FOR ASSESS MENT YEAR 2003-04 IN THE CASE OF MR. ALPESH B. GADA BE TAKEN UP FIRST. 3. BRIEF FACTS AS BROUGHT OUT IN THE IMPUGNED ORDER D ATED 15 TH OCTOBER 2010 PASSED BY THE COMMISSIONER (APPEALS)-I MUMBA I VIDE PARAS-3.1 3.2 AND 3.3 ARE REPRODUCED BELOW FOR READY REFERENCE:- 13.1 THE FACTS RELEVANT TO THE ISSUE ARE THAT DU RING THE SEARCH & SEIZURE ACTION AT THE RESIDENCE OF SHRI KANTILAL GA DA CERATIN DOCUMENTS WITH INCRIMINATING ENTRIES WERE FOUND. SH RI KALPESH GADA ONE OF THE PARTNERS ADMITTED THE SEIZED DOCUMENTS T O CONTAIN DETAILS OF UNRECORDED SALES. THIS FACT WAS CONFIRMED BY ONE ANOTHER PARTNER SHRI BHAGWAN GADA WHOSE SON SHRI VIPUL GADA IS O NE OF THE MAIN PERSONS IN THIS GROUP. 3.2 THE ENTRIES IN SEIZED DOCUMENTS SUCH AS PV J AND SAIBABA WERE STATED TO REPRESENT UNACCOUNTED TRADING. HOWEV ER NO INCOME FROM THIS UNACCOUNTED TRADING WAS FOUND TO BE ADMIT TED IN THE RETURN OF THE APPELLANT WHEREAS SHRI KALPESH GADA AND SHR I VIPUL GADA IN THEIR RESPECTIVE RETURNS HAD ADMITTED CERTAIN ADD ITIONAL INCOME ON ACCOUNT OF THE SAID UNACCOUNTED TRADING ACTIVITY. T HE AO HOWEVER ISSUED A SHOW CAUSE NOTICE REQUESTING THE APPELLANT TO EXPLAIN AS TO WHY THE UNACCOUNTED SALES COULD NOT BE TREATED AS U NACCOUNTED INCOME IN THE HANDS OF M/S K K ENTERPRISES AND M/S APPU TEXTILE MILLS PROPRIETOR SHRI ALPESH GADA THE APPELLANT. THE FOLLOWING IS THE RESPONSE OF THE APPELLANT. MR. ALPESH B. GADA K.K. TEX ENTERPRISES 3 IN THE CASE OF UNACCOUNTED BUSINESS WE HAVE KEPT ON SAYING RIGHT FROM BEGINNING THAT THIS IS SEPARATE ACTIVITIES CONDUCTED BY SHRI KALPESH K GADA AND SHR I VIPUL B GADA. THERE ARE VALID REASON AS UNDER TO PR OVE THIS IS A SEPARATE ENTITY. WE POINT OUT FOLLOWING THINGS WHICH ARE LYING IN SE IZED MATERIALS: 1. SEPARATE BANK ACCOUNT IS MAINTAINED. 2. CERTAIN CHEQUES ARE ISSUED FROM SAME BANK ACCOUNT FOR THE PURCHASES OF YARNS / CLOTHES AND TO PAY SOME EXPENSES. 3. CERTAIN PAPERS ARE THERE IN SEIZED MATERIALS J UST LIKE PAYMENT FOR UNACCOUNTED YARN PURCHASE. YARN / FABRIC BILLS WHICH ARE NOT TAKEN IN OUR REGULAR BOOKS OF ACCOUNT. 4. COPIES OF UNACCOUNTED YARN / FABRICS BILLS WHI CH ARE NOT IN SEIZED MATERIALS. 3.3 THE APPELLANT SUBMITTED TO THE AO THAT THERE W AS NO MANUFACTURING ACTIVITY CARRIED OUT OUTSIDE THE BOOK S AND WHATEVER EVIDENCE INDICATING UNACCOUNTED TRANSACTIONS FOUND IN SEIZED DOCUMENTS PERTAINED TO THE INDIVIDUAL BUSINESS OF S HRI KALPESH GADA AND SHRI VIPUL GADA. THE AO ALSO FOUND THAT THE S EIZED DOCUMENTS DID NOT SHOW ANY PURCHASE MADE OUTSIDE THE BOOKS AN D THE FEW BILLS FURNISHED DURING ASSESSMENT PROCEEDINGS FOR ALLEGED PURCHASES MADE OUTSIDE THE BOOKS WERE REJECTED BY THE AO. THE AO THEN CAME TO THE CONCLUSION THAT THE SALES THAT WERE FOUND MADE OU TSIDE THE BOOKS REPRESENTED UNACCOUNTED INCOME. THE AO ALSO FOUND T HAT THE BANK ACCOUNTS MAINTAINED IN THE NAME OF SAI BABA TEXTILE S AND ABBAS TEXTILES REFLECTED DEPOSITS OF RS 30 81 292/- AND R S 6 73 087/- RESPECTIVELY. THE TOTAL CAME TO RS 37 54 379/- OF W HICH THE AO CONSIDERED A SUM OF RS 24 38 296/- AS PROPORTIONATE UNACCOUNTED SALES TO REPRESENT INCOME IN THE HANDS OF THE APPEL LANT AND BROUGHT TO TAX. THE AO ATTEMPTED TO CORRELATE THE ENTRIES FOUN D IN PVJ AND SAI BABA WITH THE ENTRIES IN BANK ACCOUNTS BUT IN VAIN. THE AO THEREFORE CAME TO THE CONCLUSION THAT THE TRANSACTIONS ARE INDEPENDENT OF EACH OTHER ACCORDINGLY HE TAXED THE PROPORTIONATE UNAC COUNTED SALE PROCEEDS AS INCOME IN THE HANDS OF THE APPELLANT. T HE BALANCE AMOUNT WAS TAKEN TO THE FILE OF M/S K K ENTERPRISES AND TA XED THEREIN. THESE ADDITIONS ARE MADE ON SUBSTANTIVE BASIS. THE SAME I NCOME ARE ASSESSED IN THE HANDS OF SHRI KALPESH GADA AND SHRI VIPUL GADA ON PROTECTIVE BASIS. 4. BEFORE THE COMMISSIONER (APPEALS) THE ASSESSEE REI TERATED THE CONTENTIONS THAT THE UNACCOUNTED SALES WERE PART OF TRADING ACTIVITY. THAT THE SURPLUS ARISING FROM UNACCOUNTED TRADING ACTIVITY H AS BEEN OFFERED AS INCOME IN THE INDIVIDUAL HANDS OF MR. KALPESH B. GADA AND MR. VIPUL GADA AS THE MR. ALPESH B. GADA K.K. TEX ENTERPRISES 4 UNACCOUNTED TRADING ACTIVITY HAD BEEN DONE BY THE S AID TWO INDIVIDUALS ONLY. THE ASSESSEE CONTENDED THAT THE MATERIAL SEIZED TH E STATEMENT RECORDED AND THE RETURNS OF INCOME FILED CLEARLY SHOW THAT THE INCOME BELONGS TO MR. KALPESH B. GADA AND MR. VIPUL GADA AND NOT TO THE ASSESSEE MR. ALPESH B. GADA AND M/S. K.K. TEX ENTERPRISES. THAT THE MATERI AL SEIZED DURING THE COURSE OF SEARCH EVIDENCED PURCHASES OUTSIDE THE B OOKS AND THIS FACT IS CO- RELATED WITH THE BANK ACCOUNTS MAINTAINED IN THE NA ME OF SAIBABA TEXTILES. THE COMMISSIONER (APPEALS) ON THE GROUND THAT NO E VIDENCE WAS FOUND DURING THE COURSE OF SEARCH WHICH PROVES UNACCOUNT ED PURCHASES AND ON THE GROUND THAT THE FABRICS SOLD OUTSIDE THE BOOKS WERE ACTUALLY PRODUCED BY USING THE MACHINERY AND RAW MATERIAL REJECTED THE CONTENTIONS OF THE ASSESSEE. FURTHER AGGRIEVED THE ASSESSEE IS IN APP EAL BEFORE THE TRIBUNAL. 5. THE FACTS ARISING OUT OF THE SECOND ISSUE AS BROUG HT OUT IN PARAS-4.1 4.2 AND 4.3 OF THE COMMISSIONER (APPEALS)S ORDER ARE EXTRACTED BELOW FOR READY REFERENCE:- 4.1 THE SHORT FACTS ARE THAT DURING SEARCH AT THE RESIDENCE OF SHRI ALPESH GADA CERTAIN DOCUMENTS LIKE CHEQUE BOOKS PAY IN SLIPS IN RESPECT OF BANK ACCOUNTS HELD IN THE NAME OF VARIOU S OTHER PERSONS ESP LABOURERS WERE FOUND. SHRI KALPESH GADA IN A ST ATEMENT RECORDED U/S 132(4) ON 12/07/07 ADMITTED THAT SUCH BANK AC COUNTS WERE MEANT FOR INFLATING LABOUR EXPENSES IN THE CASE OF M/S APPU TEXTILES AND M/S K K ENTERPRISES. 4.2 SHRI KALPESH GADA ONE OF THE MAIN PERSONS IN THE GROUP FURTHER STATED THAT HE WAS SHOWING RECEIPT OF LAB OUR CHARGES FROM SHRI ALPESH GADA PROPRIETOR M/S APPU TEXTILES WHI CH ACTUALLY WAS DONE TO INFLATE THE EXPENSES IN THE CASE OF M/S APP U TEXTILES. HE FURTHER ADMITTED THAT THE EXPENDITURE ON ACCOUNT OF LABOUR CHARGES WAS INFLATED BY SHOWING PAYMENTS TO OTHER MEMBERS O F THE FAMILY AND LABOURS. WITH REGARD TO THE FINDING OF BANK ACCOUNT S IN THE NAME OF VARIOUS OTHER PERSONS IT WAS ADMITTED BY HIM THAT THOUGH SALARIES WERE ACTUALLY PAID TO THE WORKERS THEY WERE SHOWN AS CONTRACTORS IN BOOKS. EIGHT NUMBER OF EMPLOYEES WHOSE STATEMENTS WERE RECORDED ADMITTED THAT THEY WERE WORKING FOR SALARIES AND B ANK ACCOUNTS WERE MAINTAINED BY THE APPELLANT IN THEIR NAME TO INFLAT E LABOUR CHARGES. RETURNS OF INCOME WERE ALSO FILED IN THE NAME OF TH ESE PERSONS AND THESE PERSONS HAD AFFIXED THEIR SIGNATURES ON BLANK CHEQUES. THE BANK ACCOUNTS WERE FURTHER FOUND TO BE OPENED AND OP ERATED BY THE EMPLOYER. NONE OF THE EMPLOYEES WAS HAVING ANY IDEA ABOUT THE TRANSACTIONS IN BANK ACCOUNTS. ONE SHRI DILIP PRAJA PATI IN A STATEMENT MR. ALPESH B. GADA K.K. TEX ENTERPRISES 5 RECORDED DURING SEARCH IN THE FACTORY PREMISES AT P ARK COMPOUND ADMITTED THAT HE HAD NOT DONE ANY JOB WORK FOR TH E APPELLANT. IN REPLY TO A SPECIFIC QUESTION SHRI KALPESH GADA AD MITTED THAT KARIGAR WAGES WERE PAID ON METER BASIS AND RS 1.25 PER METE R WAS ADMITTED TO BE THE CURRENT RATE. FURTHER FINDING OF THE AO I S THAT THE TOTAL LABOUR CHARGES CLAIMED BY THE GROUP OVER A PERIOD O F 4 YEARS FROM 2002-2003 TO 2008-09 WAS OF THE ORDER OF RS 14.09 CRORE. THE AO WORKED OUT AND FOUND THAT THE APPELLANT WAS CLAIMI NG RS 6.50 PER METER AS LABOUR EXPENSES WHEREAS THE ACTUAL EXPENDI TURE WAS OF THE ORDER OF RS 1.5 TO RS 2 PER METER. IN THIS CONNECTI ON A SHOW CAUSE NOTICE WAS ISSUED CALLING UPON THE APPELLANT TO SHO W CAUSE AS TO WHY LABOUR CHARGES SHOULD NOT BE RESTRICTED. THE REPLY OF THE APPELLANT WAS THAT THE STATEMENT OF SHRI KALPESH GADA ADMITTING INFLATION OF LABOUR EXPENSES WAS WRONG. SHRI BHAGWAJI GADA THE MAIN PE RSON HAS STRONGLY OBJECTED TO IT. IT IS STATED THAT ONLY A FEW PERSONS OUT OF 80 LABOURERS HAD GIVEN ADVERSE STATEMENTS AND THE FURT HER REPLY WAS THAT IN ORDER TO BUY PEACE OF MIND THE APPELLANT DIS CLOSED RS 50.50 LACS AS ADDITIONAL INCOME DURING SEARCH. THROUGH ANOTHER SHOW CAUSE NOTICE THE APPELLANT WAS ASKED TO EXPLAIN AS TO W HY LABOUR CHARGES CLAIMED BEYOND RS 1.50 PER METER SHOULD NOT BE DISA LLOWED. THE APPELLANT REPLIED THAT RS 4 TO RS 4.5 PER METER W AS PAID DURING THE AY 04-05 AND 05-06 AND RS 4 AND RS 6 WERE PAID DURI NG THE YEARS RELEVANT TO THE AY 07-08 AND 08-09. CONSIDERING THE ARGUMENT OF THE APPELLANT THAT HE DID INCUR CERTAIN EXPENSES OTHER THAN THE EXPENSES RECORDED IN BOOKS THE AD CHOSE TO ALLOW RS 3 PER M ETER AS LABOUR CHARGES WHICH WORKED OUT TO RS 13 85 232/- AND DIS ALLOWED THE BALANCE AMOUNT OF RS 1 29 046/-. THE FOLLOWING IS T HE OBSERVATION OF THE AD. THE ASSESSEES SUBMISSIONS HAVE BEEN DULY CONSIDERE D IT IS A SETTLED LAW THAT DOCUMENTS / EVIDENCES / RECO RDINGS ON LOOSE PAPERS BOOKS OF ACCOUNTS ETC FOUND DURIN G THE COURSE OF SEARCH REPRESENT THE TRUE STATE OF AFFAIR S OF THE ASSESSEES BUSINESS EXISTING ON DATE OF SEARCH. IT IS AN ADMITTED FACT THAT INSTANCES OF LARGE SCALE INFLAT ION OF EXPENSES WERE FOUND DURING THE COURSE OF SEARCH AND THE ASSESSEE GROUP HAD DECLARED AN INCOME OF RS 50.50 L ACS ON ACCOUNT OF SUCH UNVERIFIABLE EXPENSES. WHAT REMA INS TO BE SEEN NOW IS WHETHER THE SAID DISCLOSURE WAS COMMENSURATE WITH THE DISCREPANCIES FOUND OR IS JUS T AN EYE WASH. IT IS PERTINENT TO POINT OUT AT THIS STAG E THAT THE FAMILY MEMBERS IN WHOSE NAMES LABOUR CHARGES WE RE BOOKED WERE MERE CONDUIT FOR SIPHONING OFF OF FUNDS AND HAD NOT RENDERED ANY SERVICES TO THE SAID BUSINESS CONCERN IN QUESTION BY WAY OF JOB WORK. TO THAT EXT ENT LABOUR CHARGES PAID WERE NOT EVEN REMOTELY CONNECTE D WITH THE BUSINESS. THE LABOUR EXPENSES IN ORDER TO QUALIFY FOR ALLOWANCE HAD TO BE INCURRED WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF BUSINESS. THIS IS A TYPICAL CASE WHERE THE MANUFACTURING WAS DONE BY THE CONCERN USING ITS OWN WORKFORCE BUT LABOUR CHARGES WERE PAID TO PERSONS SPECIFIED U/S 40A(2)(B) AND OR ITS EMPLOYEES WHO MR. ALPESH B. GADA K.K. TEX ENTERPRISES 6 FACILITATED THE ASSESSEES DESIGN. THUS THE EXPEND ITURE WAS DONE TO INFLATE THE EXPENSES AND BRING DOWN THE PROFIT MARGIN. THE NET PROFIT PERCENTAGE FOR VARIOU S ASSESSMENT YEARS VARIES NARROW RANGE OF 0.5 % TO 2 %. THUS IT IS INEVITABLE TO INFER THAT THERE WAS INDEE D INFLATION OF EXPENSES. TO ASCERTAIN THE QUANTUM OF SUCH INFLATION IT IS PERTINENT TO TAKE INTO ACCOUNT THE ACTUAL WAGE RATE PAID TO THE WORKERS AND THE LABOUR CHARGE S SHOWN IN THE BOOKS OF ACCOUNTS. IT IS AGAIN AN ADMI TTED POSITION THAT THE LABOUR CHARGES PAID PER METER OF GREY CLOTH WERE RS 1.5 TO 2 WHEREAS THE AMOUNT DEBITED I N THE BOOKS WAS C RS 6.5. THE ASSESSEE ALSO ARGUED THAT D URING ASSESSMENT THAT IT HAD BOOKED ALL OTHER RELATED MANUFACTURING EXPENSES UNDER LABOUR CHARGES AND THE SAME SHOULD BE CONSIDERED. IN VIEW OF THIS A FURT HER ALLOWANCE OF RS 1.5 PER METER IS GRANTED. THE ASSES SEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS FAILED TO FURNISH STOCK REGISTER FOR VERIFICATION. IN VIEW OF THIS THE QUANTITATIVE DETAILS AVAILABLE IN THE TAX AUDIT REP ORT HAVE TO BE COMPULSORILY RELIED UPON. THUS FROM THE QUANTITATIVE DETAILS THE TOTAL QUANTITY MANUFACTUR ED DURHG THE YEAR IS DETERMINED AND THE QUANTUM OF INF LATED EXPENSES RECORDED IN THE BOOKS OF ACCOUNTS AFTER AL LOWING A MARGIN OF RS 3 PER METER (RS 1.5 FOR LABOR + RS 1 .5 FOR OTHER INCIDENTAL EXPENSES LIKE TRANSPORT POWER BEA M DRAWING ETC) IS WORKED OUT AS BELOW: CLOSING STOCK OF GREY CLOTH = 12162 METERS RS 3106 73 AVERAGE PRICE = RS 310673 / 12162 RS 25 SALES SHOWN IS RS 11543622/- @ RS 25 PER METER QUANTITY OF GREY CLOTH MANUFACTU RED = 11543622 / 25 = 461744 METERS LABOUR CHARGES CLAIMED RS 1514278/- LABOUR CHARGES ALLOWABLE RS 3 PER METER = 461744 METERS X 3 = RS 1385232/- DISALLOWANCE ` .1514278 RS 1385232 = RS 129046/-. 4.3 THAT IS THE AO WORKED OUT THE NUMBER OF METERS WOVEN AT 4 61 744 METER BY DIVIDING THE TOTAL SALES BY THE A VERAGE SALE PRICE @ 25 PER METER AND ALLOWED RS 3 PER METER FOR LABOUR CHARGES WHICH WORKED OUT TO ` .13 85 232/- AND DISALLOWED THE BALANCE AMOUNT OF ` .1 29 046/- OUT OF TOTAL EXPENSES CLAIMED OF ` 15 14 278/-. MR. ALPESH B. GADA K.K. TEX ENTERPRISES 7 6. ON APPEAL THE COMMISSIONER (APPEALS) GRANTED PART RELIEF. AGGRIEVED THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUN AL. THE FOLLOWING GROUNDS ARE RAISED:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE APPELLANT S CASE AND IN LAW THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.24 38 296/- MADE BY THE LD. A.O ON ACCOUNT OF ALLEGED UNDISCLOS ED SALES WITHOUT APPRECIATING THE FACT THAT THE ESTIMATED PROFIT ON UNACCOUNTED SALES WERE DECLARED IN THE RETURN OF INCOME OF VIPUL GADA & KALPESH GADA. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION TO THE EXTE NT OF RS.1 16 485/- OUT OF THE ADDITION OF RS.1 29 046/- MADE BY THE LD . AO IN RESPECT OF ALLEGED INFLATED LABOUR CHARGES WITHOUT APPRECIATIN G THE FACT THAT THE APPELLANT HAD PAID CONSOLIDATED CHARGES TO THE CONT RACTORS TOWARDS GODOWN CHARGES INWARD TRANSPORT OCTROI WARPINS SIZING BEAM SETTER DROPIN CHARGES WEAVING JOBBER CLIPPING FOLDERS OUTWARD TRANSPORT ELECTRICITY MILL STORES SPARES LUBRICA NT AND HAMAL CHARGES WHICH WERE CLAIMED UNDER THE HEAD LABOUR CHARGES. 7. LEARNED COUNSEL MR. VIJAY MEHTA ON BEHALF OF THE ASSESSEE FILED TWO PAPER BOOKS RUNNING INTO 243 PAGES. HE SUBMITTED TH AT THE UNACCOUNTED SALES IN QUESTION DO NOT BELONG TO EITHER MR. ALPES H B. GADA OR M/S. K.K. ENTERPRISES. HE SUBMITTED THAT THE PROFITS ARISING ON THIS UNACCOUNTED SALES ARISING OUT OF TRADING WERE OFFERED TO TAX IN THE C ASE OF MR. KALPESH G. GADA AND MR. VIPUL GADA AND THE ASSESSING OFFICER HAS T AXED THE SAME ON SUBSTANTIVE BASIS IN THEIR HANDS. IN ADDITION TO TH E SAME THE ASSESSING OFFICER HAD ADDED THE ENTIRE TURNOVER FROM UNACCOUN TED TRADING IN THE HANDS OF MR. KALPESH G. GADA AND MR. VIPUL GADA ON PROT ECTIVE BASIS. HE SUBMITTED THAT THESE PROTECTIVE ADDITIONS WERE DELE TED BY THE COMMISSIONER (APPEALS). 8. LEARNED COUNSEL SUBMITTED THAT THERE IS NO DISPUTE OF THE FACT THAT THERE WAS UNACCOUNTED SALES. HE POINTED OUT THAT TH E FACT THAT THE ASSESSEE HAS UNACCOUNTED SALES HAS BEEN GATHERED FROM THE ST ATEMENT GIVEN BY MR. BHAGWAN K. GADA AND IN ANSWER TO QUESTION NO.12 I T WAS STATED THAT ALL THE TRADING TRANSACTIONS CONTAINED IN THE REGISTER ARE UNACCOUNTED. SIMILARLY HE SUBMITTED THAT IN REPLY TO QUESTION NO.10 MR. BHAG WAN K. GADA SUBMITTED MR. ALPESH B. GADA K.K. TEX ENTERPRISES 8 THAT TRADING TRANSACTION CONTAINED IN THE REGISTER ARE UNACCOUNTED. SIMILARLY HE POINTED OUT TO THE ANSWER TO QUESTION NO.15 AND ALSO OTHER TO REPLIES IN THE STATEMENT. HE CONTENDED THAT THE ADDITION IS BA SED ON THE STATEMENT BUT THE REVENUE IS RELYING ONLY ON ONE PART OF THE STAT EMENT AND IGNORING THE SECOND PART. HE TOOK US THROUGH THE SEARCH MATERIAL S AND THE STATEMENT OF MR. KALPESH K. GADA IN SUPPORT OF THIS CONTENTION THAT THE UNACCOUNTED SALES IN QUESTION IS FROM TRADING AND NOT FOR MANUF ACTURING AND THAT IT BELONGS TO MR. KALPESH K. GADA. WE WOULD BE REFERRI NG TO EACH OF THESE MATERIALS IN OUR FINDINGS. 9. HE ALSO DREW THE ATTENTION OF THE BENCH TO VARIOUS PURCHASE BILLS OF SAIBABA TEXTILES AND CO-RELATED THE BILLS TO THE P AYMENTS RECORDED IN THE COPY OF BANK ACCOUNT WHICH WERE FOUND DURING THE CO URSE OF SEARCH IN SUPPORT OF HIS CONTENTIONS THAT UNACCOUNTED PURCHAS ES WERE EVIDENCED BY THE MATERIAL FOUND DURING THE COURSE OF SEARCH AS W ELL AS ENTRIES IN UNOFFICIAL BANK ACCOUNT MAINTAINED FOR THIS UNACCOUNTED TRADIN G. HE STRONGLY DISPUTED THE FINDINGS OF THE ASSESSING OFFICER AS WELL AS TH E COMMISSIONER (APPEALS) THAT UNACCOUNTED PURCHASES WERE NOT EVIDENCED BY EN TRIES IN THE BANK ACCOUNT OR BY MATERIALS FOUND DURING THE COURSE OF SEARCH. HE SUBMITTED THAT THESE FINDINGS ARE CONTRARY TO THE FACTS. 10. LEARNED COUNSEL FURTHER SUBMITTED THAT MR. KALPESH K. GADA AT THE TIME OF SEARCH ADMITTED THAT THIS UNACCOUNTED SALE S BELONGS TO HIM AND ALSO THAT THE BANK ACCOUNTS WERE OPERATED BY HIM. THIS A DMISSION HAS BEEN ACCEPTED BY THE ASSESSING OFFICER AND THE PROFITS A S SUCH TREATING IS TAXED IN THEIR HANDS. HE ARGUED THAT THE ASSESSING OFFICER I S NOT SURE AS TO WHAT AMOUNT OF TURNOVER BELONGS TO MR. ALPESH GADA AND W HAT BELONGS TO M/S. K.K. ENTERPRISES AND THAT HE HAS JUST APPORTIONED THE UNACCOUNTED SALES ON A 50:50 BASIS TO BOTH THE ENTERPRISES. HE SUBMITTED THAT YOU CANNOT INFER THAT A CERTAIN FIGURE OF SALE IS THAT OF AN ENTERPR ISE. REFERRING TO THE PURCHASE REGISTER THE PRODUCTION REGISTER AND OTHER BOOKS M AINTAINED BY THESE TWO ENTERPRISES WHICH IS AT PAGE-156 TO 158 OF THE PAPE R BOOK. LEARNED COUNSEL MR. ALPESH B. GADA K.K. TEX ENTERPRISES 9 SUBMITTED THAT THESE REGISTERS GIVEN FULL DETAILS O F PURCHASES MANUFACTURING PRODUCTION AND SALES. HE SUBMITTED THAT NO MATERIAL HAS BEEN SEIZED TO HOLD THAT THERE WAS SUPPRESSION OF PRODUCTION. HE POINTE D OUT THAT NO DEFECTS WERE POINTED OUT IN THESE REGISTERS AND THAT ON THE OTHER HAND ALL THE MATERIALS SEIZED SHOW THAT THESE ARE TRADING TRANSA CTIONS. HE RELIED ON THE DECISION MUMBAI G BENCH OF THE TRIBUNAL IN ITSSA NO.661/MUM./2003 ORDER DATED 30 TH NOVEMBER 2006 WHEREIN IT IS HELD THAT TO MAKE AN ADDITION IT IS THE DUTY OF REVENUE AUTHORITIES TO PROVE THE RELATIONSHIP AND THE NEXUS BETWEEN THE ASSESSEE AND THE SEIZED DOCUMENTS. HE S UBMITTED THAT NO NEXUS IS PROVED BETWEEN THE SEIZED DOCUMENTS AND TH E ASSESSEE. 11. ON GROUND NO.2 THE LEARNED COUNSEL SUBMITTED A CHA RT WHICH IS AT PAGE-7 OF THE PAPER BOOK AND POINTED OUT THAT AVERA GE LABOUR CHARGES CLAIMED AS PAID BY THE ASSESSEE WAS ` 3.25 PER METER FOR ASSESSMENT YEAR 2003-04 WHICH INCREASED TO ` 6.26 PER METER FOR ASSESSMENT YEAR 2008-09. HE POINTED OUT THAT MUMBAI B BENCH OF THE TRIBUNA L IN ITA NO.376/MUM./2011 ORDER DATED 29 TH JULY 2011 HAD ON A PARTICULAR FACTS OF THE CASE DETERMINED THE LABOUR CHARGES AT ` 3.00 PER METER. HE DREW THE ATTENTION OF THE BENCH TO THE PAPER BOOK PAGES-180 AND 168 TO DEMONSTRATE HIS CLAIM THAT EVIDENCE WAS AVAILABLE IN THE SEIZED MATERIAL ON THE ACTUAL AMOUNT OF LABOUR CHARGES PAID. HE SUBMITTED THAT NO SUCH EVIDENCE WAS AVAILABLE IN THE CASE OF MR. BHAGWAN GADA. HE FURTH ER SUBMITTED THAT WHAT WAS APPLIED FOR ASSESSMENT YEAR 2003-04 WAS APPLIE D EVEN FOR ASSESSMENT YEAR 2008-09. HIS CASE IS THAT THERE IS AN INCREASE IN LABOUR CHARGES OVER THE YEARS AND THAT THIS FACT HAS NOT BEEN CONSIDERED. H E PRAYED THAT THE ISSUE MAY BE RESTORED TO THE FILE OF ASSESSING OFFICER FO R VERIFICATION AS TO WHETHER THE MATERIAL FOUND DURING THE COURSE OF SEARCH AND ALSO CONSIDERING THE INCREASE IN RATES FROM YEAR-TO-YEAR AND THEN DECIDI NG THE ISSUE AFRESH. REFERRING TO THE STATEMENT RECORDED FROM MR. BHAGWA N GADA HE SUBMITTED THAT THE PERIOD DURING WHICH THE AMOUNT WAS PAID AS LABOUR CHARGES WAS NOT STATED. MR. ALPESH B. GADA K.K. TEX ENTERPRISES 10 12. LEARNED COUNSEL SUBMITTED THAT THESE ISSUES ARE COM MON FOR ALL THE ASSESSMENT YEARS IN BOTH THE ASSESSEES CASES BEFOR E THE TRIBUNAL WITH SOME EXCEPTIONS WHICH WERE ARGUED AS FOLLOWS:- 13. ITA NO.896/MUM./2011 IN THE CASE OF MR. ALPESH B. GADA ASSESSMENT YEAR 2008-09 AN ADDITIONAL GROUND IN RESPECT OF TE LESCOPING OF ADDITION OF INFLATED LABOUR CHARGES AGAINST EXCESS STOCK FOUND WAS MADE. LEARNED COUNSEL ARGUED THAT TELESCOPING SHOULD BE GRANTED. 14. SIMILARLY IN ITA NO.898/MUM./2011 IN THE CASE OF M/S. K.K. TEX ENTERPRISES IDENTICAL ADDITIONAL GROUND WAS TAKEN IN RESPECT OF TELESCOPING. 15. IN ITA NO.1489/MUM./2011 IN THE CASE OF M/S. K.K. TEX ENTERPRISES WHICH IS AGAINST THE DISALLOWANCE UNDER SECTION 40( A)(IA) R/W SECTION 194C LEARNED COUNSEL SUBMITTED THAT HE IS NOT PRESSING T HIS GROUND. 16. ON GROUND NO.5 IN THIS APPEAL WHICH IS ON SECTION 40(A)(IA) R/W SECTION 194H THE LEARNED COUNSEL SUBMITTED THAT THE RATE O F TAX APPLICABLE FOR THAT YEAR WAS 5% AND THAT 10% WAS APPLICABLE ONLY W.E.F 1 ST JUNE 2007. 17. LEARNED DEPARTMENTAL REPRESENTATIVE MRS. USHA NAIR ON BEHALF OF THE REVENUE OPPOSED THE CONTENTIONS OF THE ASSESSEE AN D SUBMITTED THAT UNNECESSARY STRESS IS BEING GIVEN TO THE WORD TRADING USED IN REPLY TO VARIOUS QUESTIONS IN THE STATEMENT RECORDED DURING THE COURSE OF SEARCH. SHE SUBMITTED THAT THE WORD TRADING DOES NOT MEAN PURCHASE AND SALE OF GOODS. SHE REFERRED TO PARA-5.11 OF THE ASSESSMENT ORDER AND ARGUED THAT WHAT WAS DONE WAS GOODS WERE MANUFACTURED IN THE FA CTORIES OF MR. ALPESH B. GADA AND M/S. K.K. TEX ENTERPRISES AND THESE GO ODS WERE SOLD WITHOUT RECORDING THE SAME IN THE BOOKS OF ACCOUNT. SHE FUR THER SUBMITTED THAT AS SALES WERE MADE OUTSIDE THE BOOKS AND AS THE CORRES PONDING MANUFACTURING AND OTHER EXPENSES WERE RECORDED IN THE OFFICIAL BO OKS TOTAL SALES WERE ADDED IN THIS CASE. SHE POINTED OUT THAT SEPARATE B ANK ACCOUNTS WERE MAINTAINED FOR MAKING UNACCOUNTED SALES AND THAT TH ESE WERE FOUND DURING MR. ALPESH B. GADA K.K. TEX ENTERPRISES 11 THE COURSE OF SEARCH. SHE POINTED OUT THAT THERE IS NO EVIDENCE OF ANY UNACCOUNTED PURCHASES FOUND AND WHAT WAS FOUND WAS ONLY A FEW YARN PURCHASE BILLS WHICH SHOWS THAT THERE IS NO TRADING ACTIVITY AS CLAIMED BY THE ASSESSEE. SHE CONTENDED THAT THE ONUS IS ON THE ASS ESSEE TO PROVE THAT IT IN FACT INCURRED EXPENDITURE ON UNACCOUNTED PURCHASES AND IN THE ABSENCE OF SUCH EVIDENCE NO DEDUCTION CAN BE GRANTED. ON A QU ERY FROM THE BENCH AS TO HOW THE ENTIRE TURNOVER COULD BE ADDED WITHOUT G IVING ANY DEDUCTION WHEN SOME PROOF OF EXPENSES AND PURCHASES WERE FOUN D THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT IT IS FO R THE ASSESSEE TO PRODUCE EVIDENCE IN SUPPORT OF UNACCOUNTED EXPENDITURE AND THAT THE BURDEN IS ON THE ASSESSEE AND THAT IT HAD NOT BEEN DISCHARGED. 18. ON THE ISSUE OF LABOUR CHARGES THE LEARNED DEPARTM ENTAL REPRESENTATIVE AGREED THAT THE ISSUE MAY BE RESTOR ED TO THE FILE OF ASSESSING OFFICER FOR VERIFICATION OF THE SEIZED MA TERIAL. SHE SUBMITTED THAT A SPECIFIC DIRECTION BE GIVEN THAT THE ORDER OF THE B ENCH IN THE CASE OF B.K. TEX CORP. ITA NO.371/MUM./2011 ORDER DATED 29 TH JULY 2011 AS WELL AS ORDER IN THE CASE OF BHAGWAN GADA IN ITA NO.376/MUM./201 1 ORDER DATED 29 TH JULY 2011 BE FOLLOWED IN THE CASES IN HAND. 19. ON THE ISSUE OF TELESCOPING THE LEARNED DEPARTMENT AL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE SHOULD DEMONSTRATE NEXU S BEFORE MAKING THE CLAIM. 20. ON SECTION 40(A)(IA) SHE RELIED ON THE ORDER PASSE D BY THE COMMISSIONER (APPEALS). 21. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON A PERUSAL OF THE P APERS ON RECORD AS WELL AS THE CASE LAWS CITED BEFORE US WE HOLD AS FOLLOW S:- 22. THE ISSUE BEFORE US IS WHETHER THE UNACCOUNTED SALE S IN QUESTION ARE FROM TRADING TRANSACTIONS OR FROM MANUFACTURING TRA NSACTIONS. THIS DECISION MR. ALPESH B. GADA K.K. TEX ENTERPRISES 12 HAS TO BE ARRIVED BASED ON THE STATEMENT RECORDED D URING THE COURSE OF SEARCH AND THE MATERIAL SEIZED AT THE TIME OF SEARC H. IF THE STATEMENTS AND MATERIAL LEAD US TO A CONCLUSION THAT THE UNACCOUNT ED SALES ARE FROM TRADING TRANSACTIONS THEN THESE SALES CANNOT BE ADDED IN T HE HANDS OF THE ASSESSEE. THE SUPPLEMENTARY QUESTION IS WHETHER THE ENTIRE TU RNOVER CAN BE TREATED AS INCOME OR REASONABLE EXPENSES ARE FOUND IN THE MATE RIAL SEIZED IS TO BE ALLOWED AND ONLY PROFIT FROM TRANSACTION TAXED. 23. THE FACT THAT THE ASSESSEE HAS UNACCOUNTED SALES H AVE COME TO LIGHT DURING THE COURSE OF SEARCH. CERTAIN MATERIALS WERE FOUND WHICH ARE AT PAGE- 181 TO 204 OF THE PAPER BOOK. THIS MATERIAL CONTAI NED COPIES OF SEIZED MATERIAL MARKED AS BUNDLE-9 . THIS IS A CHALLAN REGISTER OF SAIBABA TEXTILES AND OTHERS DATED 1 ST APRIL 2006 TO 2 ND FEBRUARY 2007. ON THESE PAPERS FOLLOWING NOTES ARE FOUND:- CHALLAN REGISTER OF UNACCOUNTED TRADING SAIBABA AND OTHERS THERE IS ANOTHER MARKING WHICH IS AS FOLLOWS:- THIS IS UNACCOUNTED TRADING THE NOTING ON THE REGISTER SHOWN THAT THE ENTIRE TR ANSACTIONS RECORDED IN THE REGISTER ARE UNACCOUNTED TRADING. 24. MR. BHANGWAN GADA ON A STATEMENT TAKEN ON OATH ON 16 TH AUGUST 2007 HAS ANSWERED AS FOLLOWS:- Q.12 I AM SHOWING YOU THE SEIZED MATERIAL AS PE R ANNEXURE A (27 BUNDLES) OF PANCHANAMA DATED 13/7/2007 OF RESIDENCE OF KANTILAL GADA. PLEASE GO THROUGH THE SAME AND EXPLAIN THE CO NTENTS. ANS. 9. BUNDLE NO.9 (PAGES-33)) : THIS IS A SAL E REGISTER OF M/S. SAI BABA TEXTILE FOR THE PERIOD FROM 1.4.2006 TO 13 .2.2007 IN THE HANDWRITING OF KAUSHIK GADA. AS PER PAGE NO.1 REVER SE AND PAGE NO.2 THE ENTRIES ARE IN 8 COLUMNS AS UNDER:- MR. ALPESH B. GADA K.K. TEX ENTERPRISES 13 1 ST COLUMN IS DATE 1.4.2006 2 ND COLUMN IS CHALLAN NO.1 3 RD COLUMN IS NO OF TAKAS SOLD 4 TH COLUMN IS NAME OF PURCHASER 5 TH COLUMN IS ADDRESS OF PURCHASER 6 TH COLUMN IS TOTAL METERS SOLD 7 TH COLUMN IS QUALITY 8 TH COLUMN IS NO OF FOLDS. ALL THE TRADING TRANSACTION S CONTAINED IN THIS REGISTER ARE UNACCOUNTED . 10. BUNDLE NO.10 (PAGES-4): THIS IS A SALE REGISTER OF M/S. ABBAS TEXTILE FOR THE PERIOD FROM 1.4.2006 TO 24.2.2007 IN THE HANDWRITING OF KAUSHIK GADA. AS PER PAGE NO.1 THE ENTRIES ARE IN 9 COLUMNS AS UNDER:- 1 ST COLUMN IS DATED 1.4.2006 2 ND COLUMN IS CHALLAN NO.77 J 3 RD COLUMN IS NO OF TAKAS SOLD 4 TH COLUMN IS NAME OF PURCHASER 5 TH COLUMN IS ADDRESS OF PURCHASER 6 TH COLUMN IS TOTAL METERS SOLD 7 TH COLUMN IS QUALITY 8 TH COLUMN IS NO OF FOLDS 9 TH COLUMN IS EITHER BILL NO. OR CHALLAN NO. ON PAGE NO.7 THE 9 TH COLUMN IS CASH RECEIVED. ALL THE TRADING TRANSACTIONS CONTAINED IN THIS REGISTER ARE UNACCOU NTED . THE NOTINGS IN THE LAST COLUMN UNDER THE HEAD P V J SAI BABA ARE REPRESENTING UNACCOUNTED TRADING. HOWEVER ALL THE OTHER ENTRIES HAVE BEEN DULY REFLECTED IN THE BOOKS OF AC COUNT . . PG.27 : IT CONTAINS NOTINGS BY KALPESH GADA REGARDI NG DETAILS OF THIRD PARTY CHEQUES RECEIVED AGAINST UNACCOUNTED TR ADING . . PG.27 TO 26 : PURCHASE BILL OF SAI BABA TEXTILE S . 25. THROUGHOUT THE STATEMENT MR. BHAGWAN GADA STATED THAT ALL THESE TRANSACTIONS IN QUESTION ARE UNACCOUNTED TRADING TR ANSACTIONS AND THAT CERTAIN EVIDENCES FOUND ARE PURCHASE BILLS OF SAIBA BA TEXTILES. MR. KALPESH GADA IN A STATEMENT RECORDED ON 12 TH JULY 2007 I.E. ON THE DATE OF SEARCH HAS IN REPLY TO A QUESTION STATED AS FOLLOWS:- Q.22 DURING THE COURSE OF THE SEARCH PROCEEDINGS BOOKS OF ACCOUNT / DOCUMENTS AS PER ANNEXURE AR-1 HAVE BEEN SEIZED. I AM SHOWING YOU EACH ITEM OF SUCH SEIZER. PLEASE IDENTITY THE S AME AND EXPLAIN THE CONTENTS IN DETAIL? ANS. .. A/9 THIS REGISTER IS RELATED TO SALES MA DE TO GREY CLOTH BY ME UNDER THE NAME SAIBABA TEXTILE PROP. SHRI DILIP PRAJAPATI WHO IS ALSO OUR EMPLOYEE. THIS CONCERN WAS OPERATED FOR 3 YEARS BY ME AND THE TRANSACTIONS WERE NEVER DISCLOSED TO INCOME TAX BY ME. THERE IS A BANK A/C OPENED IN THE NAME OF THIS CONCERN WITH AB HYUDAYA CORP. BANK BHIWANDI. THIS REGISTER REFLECTS THE SALE TRA NSACTIONS OF THIS CONCERNS FOR THE PERIOD 01.04.06 TO 13.02.07 . [EMPHASIS ADDED] MR. ALPESH B. GADA K.K. TEX ENTERPRISES 14 26. THIS SHOWS THAT MR. KELPASH K. GADA ADMITTED THAT SAIBABA TEXTILES IS OPERATED BY HIM. HE HAS FILED RETURN OF INCOME T O THAT EFFECT. AT PAGE-41 OF THE PAPER BOOK DELIVERY CHALLAN EVIDENCES PURCH ASE. SIMILAR EVIDENCES ARE AVAILABLE IN THE LOOSE PAPERS BUNDLES COLLECTED FROM MUMBAI OFFICE WHICH IS MARKED AS PARTY NO.AS-4 13/14 . FROM THESE SERIES OF BILLS AND CERTAIN JOTTINGS IT CAN BE SEEN THAT ` 7 50 947 WAS PAID BY WAY OF CHEQUE TO K.M.K. TEXTILES. A COMPARISON OF THESE PAYMENTS WITH THE C OPY OF BANK STATEMENT AT PAGES-82 SHOWS A CLEAR CO-RELATION. THE LEARNED COUNSEL COULD DEMONSTRATED THE SAME BEFORE US. THUS THE FACTUAL FINDINGS GIVEN BY THE ASSESSING OFFICER AS CONFIRMED BY THE COMMISSIONER (APPEALS) THAT THERE IS NO EVIDENCE OF PURCHASES MADE BY SAIBABA TEXTILES I S INCORRECT. THESE FINDINGS ARE CONTRARY TO THE SEIZED MATERIAL AND RE CORDING IN THE BANK STATEMENTS. SEPARATE BANK ACCOUNT HAS BEEN MAINTAI NED IN THE NAME OF SAIBABA TEXTILES AND SEPARATE CHEQUES HAVE BEEN ISS UED FOR MAKING PURCHASES. THE CHEQUES ISSUED CO-RELATE WITH THE DE LIVERY CHALLANS PRODUCED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER COPIE S OF WHICH ARE AT PAGES- 59 TO 76 OF THE PAPER BOOK. THUS SUMMING UP OF OUR FINDINGS FROM THE STATEMENT OF MR. BHAGWAN GADA AND THE STATEMENT OF MR. KALPESH G. GADA AND FROM THE MATERIAL SEIZED IT IS CLEAR THAT THE TRANSACTIONS IN QUESTION ARE TRADING TRANSACTIONS AND IT IS ADMITTED AS THAT OF MR. KALPESH G. GADA FOR WHICH HE FILED RETURNS OF INCOME AND THE REVENUE HA S ACCEPTED THE SAME. THERE IS NO IOTA OF EVIDENCE THAT THERE IS SUPPRESS ION IN PRODUCTION. NO DEFECTS HAVE BEEN FOUND IN THE PRODUCTION REGISTERS MAINTAINED. NO QUANTITATIVE ANALYSIS IS RELIED UPON BY THE ASSESSI NG OFFICER. THE ARGUMENTS OF LEARNED DEPARTMENTAL REPRESENTATIVE THAT TRADING TRANSACTIONS ARE SAME AS MANUFACTURING TRANSACTIONS IS DEVOID OF MERIT. THE BOOKS OF ACCOUNT QUANTITATIVE DETAILS STOCK REGISTERS ETC. OF MAN UFACTURING AND PRODUCTION WERE SEPARATELY MAINTAINED AND NO DEFECT HAS BEEN P OINTED OUT ON THE SAME. THE ADDITION IS MADE ON A SURMISE THAT PRODUC TION IS SUPPRESSED. NO INVESTIGATION IS DONE BY THE ASSESSING OFFICER ON T HE PRODUCTION REGISTER ETC. THUS ON THIS FACTUAL MATRIX WE HOLD THAT THE TRAD ING TRANSACTIONS IN QUESTION DO NOT BELONG TO EITHER THE ASSESSEE MR. A LPESH G. GADA OR M/S. MR. ALPESH B. GADA K.K. TEX ENTERPRISES 15 K.K. TEX ENTERPRISES. THESE UNACCOUNTED TRADING TRA NSACTIONS BELONG TO MR. KALPESH G. GADA AND MR. VIPUL GADA. THE ASSESSING O FFICER IS NOT SURE AS TO WHAT IS THE SO CALLED SUPPRESSION OF PRODUCTION IN EACH CASE. HE ASSUMES THAT THE SUPPRESSION IS EQUAL AND MADE AD-HOC ADDIT ION. NO EVIDENCE IS FOUND TO LINK THE ASSESSEE WITH THESE SALES. THUS THE ADDITION MADE AND SUSTAINED BY THE COMMISSIONER (APPEALS) ON ACCOUNT OF UNACCOUNTED SALES IS HEREBY DELETED. 27. EVEN OTHERWISE THE ENTIRE TURNOVER COULD NOT HAVE BEEN BROUGHT TO TAX. AT BEST ONLY PROFITS ARISING OUT OF AN ACTIVI TY CAN BE BROUGHT TO TAX. ADDITIONS ARE SOUGHT TO BE MADE ON THE BASIS OF GRO SS RECEIPTS IN A BANK ACCOUNT. AT BEST THE PEAK CREDIT COULD HAVE BEEN A DDED. IN THE CASE ON HAND GROSS RECEIPTS HAVE BEEN ADDED AS INCOME WHIC H TO OUR MIND IS NOT CORRECT. ONLY SURPLUS OF THE TRANSACTION COULD BE T AXED. 28. IN ANY EVENT AS WE HAVE HELD THAT THE ADDITIONS IN THE CASE OF MR. ALPESH G. GADA AND M/S. K.K. TEX ENTERPRISES WHICH IS MADE ON A 50:50 AD- HOC BASIS IS BAD-IN-LAW FOR THE REASON THAT THE T RANSACTIONS DO NOT PERTAIN TO THESE ENTERPRISES WE DO NOT GO INTO THE ISSUE O F WHAT IS THE SURPLUS IN THESE TRANSACTIONS. CONSEQUENTLY WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE COMMISSIONER (APPEALS) AND ALLOW GROUND NO. 1 RAISED BY THE ASSESSEE. 29. COMING TO GROUND NO.2 FROM THE SEIZED DOCUMENTS AT PAGES-22 AND 34 TO ANNEXURE A-3/29 AT PAGE-168 AND 180 OF THE PA PER BOOK IT CAN BE SAID THAT THE LABOUR CHARGES ARE PAID @ ` 3.25 PER METER FOR THE PERIOD FROM 1 ST APRIL 2002 TO 31 ST MARCH 2003. THE CLAIM OF THE ASSESSEE THAT FOR THE SUBSEQUENT YEARS DUE TO INFLATION THE LABOUR CHAR GES PAID HAS INCREASED CANNOT BE BRUSHED ASIDE. THIS BENCH OF THE TRIBUNAL IN M/S. B.K. TEX CORP. AND MR. BHAGWAN G. GADA (SUPRA) HAS COME TO A CONC LUSION THAT LABOUR CHARGES COULD BE ALLOWED BY ADOPTING ` 3.00 PER METER. AS THE EVIDENCE IN THE SEIZED MATERIAL IN THE CASE ON HAND IS LEADIN G US TO A CONCLUSION THAT THE EXPENDITURE IS MORE THAN ` 3.00 PER METER LAID DOWN BY THE BENCH AS MR. ALPESH B. GADA K.K. TEX ENTERPRISES 16 SUGGESTED BY BOTH THE PARTIES WE RESTORE THE MATTE R TO THE FILE OF ASSESSING OFFICER FOR ADJUDICATION AFRESH IN ACCORDANCE WITH LAW. THE ASSESSING OFFICER IS DIRECTED TO CONSIDER THE PROPOSITIONS LAID DOWN BY THIS BENCH IN THE CASE OF M/S. B.K. TEX CORP. (SUPRA) AND IN THE CASE OF MR. BHAGWAN GADA (SUPRA) AS WELL AS THE MATERIAL FOUND DURING THE COURSE OF SEA RCH AND THE INFLATION FACTOR CLAIMED BY THE ASSESSEE AND COME TO AN APPROPRIATE CONCLUSION. ACCORDINGLY WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE COMMI SSIONER (APPEALS) AND RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER FOR ADJUDICATION AFRESH. THUS GROUND NO.2 IS ALLOWED FOR STATISTICAL PURPO SES. 30. GROUND NO.3 IS GENERAL IN NATURE HENCE NO SEPARA TE ADJUDICATION IS REQUIRED. 31. IN THE RESULT ASSESSEES APPEAL IN ITA NO.893/MUM. /2011 FOR ASSESSMENT YEAR 2003-04 IS PARTLY ALLOWED. 32. WE NOW TAKE UP APPEALS IN ITA NO.894/MUM./2011 FOR ASSESSMENT YEAR 2005-06 ITA NO.895/MUM./2011 FOR ASSESSMENT YEAR 2006-07 ITA NO.896/MUM./2011 FOR ASSESSMENT YEAR 2008-09 AND I TA NO.1487/MUM./ 2011 FOR ASSESSMENT YEAR 2007-08 RESPECTIVELY. 33. GROUND NO.1 IN ALL THESE APPEALS PERTAINS TO ADDIT ION ON ACCOUNT OF UNACCOUNTED SALES. THIS GROUND IS IDENTICAL TO THE GROUND NO.1 RAISED IN ITA NO.893/MUM./2011 FOR ASSESSMENT YEAR 2003-04. CONS ISTENT WITH THE VIEW TAKEN BY US IN THIS ORDER VIDE PARAS-21 TO 27 ABOVE WE HOLD THAT THE UNACCOUNTED TRADING TRANSACTION DO NOT BELONG TO TH E ASSESSEE. CONSEQUENTLY THE GROUND RAISED BY THE ASSESSEE IS ALLOWED AND THE ADDITION IS DELETED. 34. GROUND NO.2 IN ALL THESE APPEALS IS ON THE ISSUE OF DISALLOWANCE OF LABOUR CHARGES. THIS GROUND IS ALSO IDENTICAL TO TH E GROUND NO.2 RAISED IN ITA NO.893/MUM./ 2011 FOR ASSESSMENT YEAR 2003-04. CON SISTENT WITH THE VIEW TAKEN BY US IN THIS ORDER VIDE PARA-28 ABOVE WE SE T ASIDE THE IMPUGNED MR. ALPESH B. GADA K.K. TEX ENTERPRISES 17 ORDERS PASSED BY THE COMMISSIONER (APPEALS) AND RES TORE THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR DENOVE ADJUDICATI ON IN ACCORDANCE WITH LAW. THUS GROUND NO.2 IN ALL THE THREE YEARS ARE ALLOW ED FOR STATISTICAL PURPOSES. 35. IN ITA NO.896/MUM./2011 THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND IN RESPECT OF TELESCOPING OF ADDITION OF INF LATED LABOUR CHARGES AGAINST EXCESS STOCK FOUND. 36. AS WE HAVE RESTORE THE ISSUE OF ADDITION ON ACCOUNT OF INFLATION OF LABOUR CHARGES FOR ADJUDICATION AFRESH WE SET AIDE THE IMPUGNED ORDER PASSED BY THE COMMISSIONER (APPEALS) AND RESTORE TH IS GROUND OF TELESCOPING TO THE FILE OF ASSESSING OFFICER FOR DE NOVO ADJUDICATION. THE ASSESSING OFFICER HAS TO GRANT TELESCOPING BENEFIT TO THE EXTENT OF ADDITIONS SUSTAINED BY HIM. THIS GROUND IS THUS ALLOWED FOR STATISTICAL PURPOSES. 37. IN THE RESULT ASSESSEES APPEALS IN ITA NO.894/MUM ./2011 ITA NO.895/MUM./2011 ITA NO.895/MUM./2011 AND ITA NO.1 487/MUM./2011 ARE PARTLY ALLOWED. 38. WE NOW TAKE UP ASSESSEES APPEALS IN ITA NO.897/MUM ./2011 FOR ASSESSMENT YEAR 2006-07 ITA NO.1489/MUM./2011 FOR ASSESSMENT YEAR 2007-08 AND ITA NO.898/MUM./2011 FOR ASSESSMENT YE AR 2008-09. 39. GROUND NO.1 IN ITA NO.897 AND 898/MUM./2011 AND GR OUND NO.1 AND 2 IN ITA NO.1489/MUM./2011 PERTAINS TO ADDITION O N ACCOUNT OF UNACCOUNTED SALES. THIS GROUND IS IDENTICAL TO THE GROUND NO.1 RAISED IN ITA NO.893/MUM./2011 FOR ASSESSMENT YEAR 2003-04. AS A LREADY STATED THE ASSESSING OFFICER ADDED UNACCOUNTED SALES ON AD-HOC ESTIMATED BASIS EQUALLY TO MR. ALPESH B. GADA AND M/S. K.K. TEX EN TERPRISES FOR EACH OF THESE YEARS. CONSISTENT WITH THE VIEW TAKEN BY US I N THIS ORDER VIDE PARAS-21 TO 27 ABOVE WE SET ASIDE THE IMPUGNED ORDERS PASSE D BY THE COMMISSIONER (APPEALS) AND ALLOW GROUND NO.1 FOR ALL THE YEARS . THE ADDITION MADE ON ACCOUNT OF UNACCOUNTED TRADING ARE HEREBY DELETED. MR. ALPESH B. GADA K.K. TEX ENTERPRISES 18 40. GROUND NO.2 IN ITA NO.897 AND 898/MUM./2011 AND GR OUND NO.3 IN ITA NO.1489/MUM./2011 IS ON THE ISSUE OF INFLATED LABOUR CHARGES. 41. THIS GROUND IS ALSO IDENTICAL TO THE GROUND NO.2 R AISED IN ITA NO.893/MUM./ 2011 FOR ASSESSMENT YEAR 2003-04. CON SISTENT WITH THE VIEW TAKEN BY US IN THIS ORDER VIDE PARA-28 ABOVE WE SE T ASIDE THE IMPUGNED ORDERS PASSED BY THE COMMISSIONER (APPEALS) AND RES TORE THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR DENOVE ADJUDICATI ON IN ACCORDANCE WITH LAW. THUS GROUND NO.2 IN ALL THE THREE YEARS ARE ALLOW ED FOR STATISTICAL PURPOSES. 42. GROUND NO.4 IN ITA NO.1489/MUM./2011 FOR ASSESSME NT YEAR 2007- 08 IS ON THE ISSUE OF DISALLOWANCE OF ` 49 01 332 UNDER SECTION 40A(IA) R/W SECTION 194C OF THE ACT. 43. BEFORE US LEARNED COUNSEL FOR THE ASSESSEE DID NOT WISH TO PRESS THIS GROUND. CONSEQUENTLY THIS GROUND IS DISMISSED AS NOT PRESSED . 44. GROUND NO.4 IN ITA NO.1489/MUM./2011 FOR ASSESSME NT YEAR 2007- 08 IS ON THE ISSUE OF DISALLOWANCE OF 40A(IA) R/W SECTION 194H OF THE ACT. 45. THE ASSESSING OFFICER DISALLOWED THE AMOUNT ON THE GROUND THAT THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE @ 10% FROM COMMISSION AND BROKERAGE. AS RIGHTLY POINTED OUT BY THE ASSESSEE THE TAX RATE APPLICABLE IS 5% FOR THE RELEVANT ASSESSMENT YEAR. THE RATE OF 10 % CAME INTO EFFECT FROM 1 ST JUNE 2007. THUS THIS DISALLOWANCE ON THE GROUND T HAT TDS HAS BEEN DEDUCTED AT A LOWER RATE THAN PRESCRIBED IS HEREBY DELETED. GROUND NO.5 IS THUS ALLOWED. 46. ITA NO.898/MUM./2011 FOR ASSESSMENT YEAR 2008-09 THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND IN RESPECT OF TELES COPING OF ADDITION OF INFLATION LABOUR CHARGES AGAINST THE EXCESS STOCK F OUND. 47. THIS GROUND IS ALSO IDENTICAL TO THE GROUND NO.2 R AISED IN ITA NO.893/MUM./ 2011 FOR ASSESSMENT YEAR 2003-04. CON SISTENT WITH THE VIEW MR. ALPESH B. GADA K.K. TEX ENTERPRISES 19 TAKEN BY US IN THIS ORDER VIDE PARA-28 ABOVE WE SE T ASIDE THE IMPUGNED ORDERS PASSED BY THE COMMISSIONER (APPEALS) AND RES TORE THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR DENOVE ADJUDICATI ON IN ACCORDANCE WITH LAW. THIS GROUND IS THUS ALLOWED FOR STATISTICAL PURPO SES. 48. IN THE RESULT ASSESSEES APPEALS IN ITA NO.897/MUM ./2011 ITA NO.1489/MUM./2011 AND ITA NO.898/MUM./2011 ARE PA RTLY ALLOWED. 49. TO SUM UP ITA NO.893/MUM./2011 IS ALLOWED FOR STA TISTICAL PURPOSES ITA NO.894 895 896 AND 1487/MUM./2011 AND ITA NO. 897 1489 AND 898/ MUM./2011 ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH NOVEMBER 2011 SD/- V. DURGA RAO JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI DATED: 25 TH NOVEMBER 2011 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A) MUMBAI CONCERNED; (4) THE CIT MUMBAI CITY CONCERNED; (5) THE DR A BENCH ITAT MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT MUMBAI BENCHES MUMBAI