M/s. Jayesh Finance, Anand v. The ACIT.,Cent.Circle-1,, Baroda

ITSSA 236/AHD/2011 | 2004-2005
Pronouncement Date: 31-10-2013 | Result: Dismissed

Appeal Details

RSA Number 23620516 RSA 2011
Assessee PAN AADFJ7889B
Bench Ahmedabad
Appeal Number ITSSA 236/AHD/2011
Duration Of Justice 2 year(s) 8 month(s)
Appellant M/s. Jayesh Finance, Anand
Respondent The ACIT.,Cent.Circle-1,, Baroda
Appeal Type Income Tax (Search & Seizure) Appeal
Pronouncement Date 31-10-2013
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 31-10-2013
Date Of Final Hearing 08-08-2013
Next Hearing Date 08-08-2013
Assessment Year 2004-2005
Appeal Filed On 28-02-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT JUDICIAL MEMBER AND SHRI T.R. MEENA ACCOUNTANT MEMBER ITA NO. 2691 & 2692/AHD/2009 A.YS. 2005-06 & 2006-07 THE ACIT CENTRAL CIRCLE- 1 BARODA V/S. M/S. JAYESH FINANCE 24 SARDARGUNJ BAZAR ANAND PAN: AADFJ 7889B (APPELLANT) (RESPONDENT) IT(SS)A NO. 236 237 & 238/AHD/2011 A.YS. 2004-05 2005-06 & 2006-07 M/S. JAYESH FINANCE 24 SARDARGUNJ BAZAR ANAND PAN: AADFJ 7889B V/S. THE ACIT CENTRAL CIRCLE-1 BARODA (APPELLANT) (RESPONDENT) IT(SS)A NO. 586 587 & 588/AHD/2012 A.YS. 2004-05 2005-06 & 2006-07 M/S. JAYESH FINANCE 24 SARDARGUNJ BAZAR ANAND PAN: AADFJ 7889B V/S. THE ACIT CENTRAL CIRCLE-1 BARODA (APPELLANT) (RESPONDENT) ITA NO. 2689 & 2690/AHD/2009 A.YS. 2005-06 & 2006-07 THE ACIT CENTRAL CIRCLE- 1 BARODA V/S. LATE MUKESH J. PATEL L/H SMT. MEENABEN J. PATEL MOTIKAHDI UMRETH. PAN: ANNPP 2266P (APPELLANT) (RESPONDENT) REVENUE BY : SHRI D.S. KALYAN T.P. KRISHNA KUMAR CIT-DR AND J.P. JHANGID SR.D.R. ASSESSEE(S) BY : S/SHRI S.N. SOPARKAR SENIOR ADVOCATE & MUKUND BAKSHI A.R. IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 2 - / DATE OF HEARING : 08/08/2013 & 13.9.2013 / DATE OF PRONOUNCEMENT: 31/10/2013 / O R D E R PER SHRI MUKUL KR. SHRAWAT JUDICIAL MEMBER : FOR A.Y. 2005-06 AND 2006-07 THE ASSESSEE AND THE REVENUE DEPARTMENT ARE IN CROSS APPEALS. HOWEVER F OR A.Y. 2004-05 ONLY THE ASSESSEE IS IN APPEAL. ALL THE APP EALS AS PER THE NOMENCLATURE SUPRA THESE ARE CONNECTED APPEALS; HE NCE CONSOLIDATED AND HEREBY DECIDED BY THIS COMMON ORDE R. REGISTRY HAS INFORMED THAT THE APPEALS FILED BY THE ASSESSEE WERE TIME BARRED THEREFORE AN ORDER HAS BEEN PASSED BY ITA T C BENCH DATED 06.09.2012 WHEREIN THE ASSESSEES APPEAL BEAR ING ITA NO.236 237 238/AHD/2011 WERE ADMITTED AFTER CONDO NING THE DELAY. ACCORDINGLY THESE APPEALS ARE HEREBY ADJUDI CATED UPON HEREUNDER: A. ASSESSEES APPEAL (FOR A.Y. 2004-05 2005-06 AND 20 06- 07)(IT(SS) 236 237&238/AHD/2011) 2. GROUND RAISED BY THE ASSESSEE FOR THESE THRE E YEARS EMANATING FROM THREE SEPARATE ORDERS OF CIT(A) ALL DATED 31.3.2009 NOW UNDER APPEAL ARE IDENTICALLY WORDED HENCE REPRODUCED BELOW: 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)- IV AHMEDABAD HAS ERRED IN LAW AND IN FACTS IN NOT APPRECIATING T HE CONTENTIONS AND SUBMISSIONS OF THE APPELLANT THAT THE UNACCOUNTED BUSINESS OF MONEY LENDING AND FINANCE CARRIED OUT BY IT ALONG WITH VARIOUS PERSONS WAS TO BE ASSESSED TO TAX IN THE CASE OF ASSOCIATION OF PERSONS (AOP) AND IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 3 - NOT IN THE CASE OF THE APPELLANT FIRM. LD. CIT(A) OUGHT TO HAVE HELD THAT THE INCOME OF THE UNACCOUNTED BUSINESS COULD N OT HAVE BEEN TAXED IN THE CASE OF THE APPELLANT AND THE ASSESSMENT MAD E IN TAXING THE INCOME FROM UNACCOUNTED BUSINESS DESERVES DELETION. 2. THE LD. CIT(A)-IV AHMEDABAD FURTHER ERRED IN LAW AND IN FACTS IN CONFIRMING THE ACTION OF THE LD. A.O. IN HOLDING TH AT THE STATUS OF AOP AS CLAIMED WAS NOT EXISTENCE AS IT HAD NOT OBTAINED ANY PERMANENT ACCOUNT NUMBER NOR ANY RETURN WAS FILED AND HENCE T HE CLAIM OF THE APPELLANT IN THE TAXATION OF INCOME OF UNACCOUNTED BUSINESS COULD NOT BE TAXED IN THE STATUS OF AOP. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE VERY FACT THAT THE BUSINESS WA S CARRIED OUTSIDE THE BOOKS ITSELF ESTABLISHED THE REASON FOR NOT OBTAINI NG THE P.A. NUMBER AND THEREFORE THE REJECTION OF THE APPELLANT'S CL AIM COULD NOT HAVE BEEN DENIED. 3. THE LD. CIT(A)-IV AHMEDABAD HAS FURTHER ERRED IN FACTS AND IN LAW IN CONCLUDING THAT THE APPELLANT ITSELF HAS DEC LARED ITS STATUS IS THAT OF A FIRM AND THEREFORE THE CLAIM OF THE FIR M BEING TAXED AS AOP COULD NOT BE ENTERTAINED. THIS OBSERVATION AND FIND ING OF THE LD. CIT(A) IS IN COMPLETE DISREGARD OF THE APPELLANT'S CONTENTION WHERE THE CLAIM WAS MADE BY IT WITH RESPECT TO THE BUSINE SS CARRIED ON BY IT ALONG WITH OTHER PERSONS WHICH WAS A DIFFERENT ENT ITY AND 'PERSON' OTHER THAN THE APPELLANT FIRM. THE FINDING AND OBSE RVATION OF THE LD. CIT(A) BEING CONTRARY TO THE AVAILABLE MATERIAL DE SERVES TO BE CANCELLED. 3. AT THE OUTSET LEARNED AR MR. S.N. SOPARKAR HAS STATED BEFORE US THAT HE IS ARGUING ONLY GROUND NO.1 AND R EST OF THE GROUNDS ARE IN SUPPORT OF THE MAIN ISSUE THUS ARGUM ENTATIVE IN NATURE. 4. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ORDERS OF LEARNED CIT(A)-IV AHMEDABAD ORDER DATED 31.03.2009 AND THE AOS ORDERS PASSED U/S. 153A (B) R.W.S 143(3) DATE D 14 TH AUGUST 2008 WERE THAT THE ASSESSEE FIRM WAS SUBJECTED TO SEARCH U/S. 132 OF IT ACT ON 19.01.2006. IN CONSEQUENCE A NOTICE U/S. 153A WAS ISSUED. IN COMPLIANCE THE ASSESSEE HAS FILED TH E RETURN DECLARING AN INCOME OF RS.1 36 646/- FOR A.Y. 2004- 05 IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 4 - RS.67 219/- FOR A.Y. 2005-06 AND RS.13 57 120/- FOR A.Y. 2006- 07. THE ASSESSEE HAS RAISED A PLEA BEFORE THE AO ON THE COMMENCEMENT OF THE ASSESSMENT PROCEEDINGS ITSELF T HAT THE ASSESSEE SHOULD BE ASSESSED AS ASSOCIATION OF PERSON (AOP). A S PER AO THE SAID PLEA WAS NOTHING BUT AN AFTERTHOUGH T TO MISLEAD THE DEPARTMENT. THE AO HAS REJECTED THE SAID CONTEN TION OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAD NOT OB TAINED THE PAN IN THE STATUS OF AOP. THE AO HAS ALSO NOTED THAT TH ERE WAS NO EVIDENCE AS TO WHEN WHERE AND HOW THOSE PERSONS OF THE AOP HAVE COME TOGETHER WITH COMMON INTENTION TO RUN THE BUSINESS. WHAT WAS THE BUSINESS CONDUCTED BY THE AOP? HOW THE PROFIT AND LOSS OF THE ALLEGED AOP WAS DISTRIBUTED AMONG ITS MEMBERS? WHAT WAS THE INSTRUMENT OR DOCUMENT OR ANY DEED EST ABLISHING THE CREATION OF THE AOP?. THOSE WERE THE QUESTIONS RAIS ED BY THE A.O. THERE WAS NO EXPLANATION BY THE ASSESSEE ABOUT THE ARRANGEMENT OF THE FINANCE. ACCORDING TO AO IT WAS MERELY A ST ATEMENT BY THE ASSESSEE WITHOUT SUPPORTING EVIDENCE HENCE THE CLA IM WAS REJECTED. IN THE ASSESSMENT ORDER THERE WAS A MENTION OF R EFERENCE TO SPECIAL AUDIT U/S.142(2A) OF IT ACT . HOWEVER THE SPECIAL AUDITOR HAS INFORMED THAT THE ASSESSEE HAD NOT PROD UCED THE BOOKS OF ACCOUNT HENCE THE SPECIAL AUDIT COULD NOT BE C ONDUCTED. THEY HAD EXPRESSED THEREFORE REGRET IN NOT FURNISHING THE REPORT U/S. 142(2A) BEING UNABLE TO CONDUCT THE AUDIT. FOR THE SAID DEFAULT ON THE PART OF THE ASSESSEE THE AO HAD INITIATED PENA L PROVISIONS. IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 5 - 5. DURING THE COURSE OF SURVEY AT THE OFFICE PREMIS ES OF THE ASSESSEE CERTAIN PROMISSORY NOTES TOTALING RS.74 60 550/ - WERE FOUND AND IMPOUNDED. THERE WAS A LIST IN THE ASSESS MENT ORDER AS FOLLOWS :- ..ANNEXURE A/17 PAGE NO.1 TO 268 FOUND FROM TH E OFFICE PREMISES AND IT CONTAINS THE NUMBER OF PROMISSORY NOTES SIGNED BY VARIOUS PERSONS WITHOUT MENTIONING THE DATE OF LOAN GIVEN AND AMOUNT OF LOAN GIVEN AND SOME OF THEM WERE MENTIONED THE AMOUNT OF LOAN GIVEN WHICH ARE LIST OUT AS UNDER: PAGE NO. OF SEIZED MATERIAL FOUND NAME OF THE PERSONS BY WHOM PROMISSORY NOTE HAS BEEN SIGNED AMOUNT MENTIONED ON PROMISSORY NOTE (RS.) DATE OF LOAN GIVEN EXPLANATION FOR ACCOUNTEDNESS 14 --- 1 00 000 INCORPORATED IN THE CASH FLOW PREPARED AND SUBMITTED IN THE CASE OF AOP 27 SHRI HASMUKHBHAI D. PATEL 4 00 000 INCORPORATED IN THE CASH FLOW PREPARED AND SUBMITTED IN THE CASE OF AOP 39 PARTH CONSTRUCTION 3 50 000 INCORPORATED IN THE CASH FLOW PREPARED AND SUBMITTED IN THE CASE OF AOP 65 SOMESHWAR CORPORATION 10 00 000 PROMISSORY NOTE OBTAINED FROM THE PARTY BUT SUBSEQUENTLY THIS TRANSACTION WAS NOT TAKEN PLACE. IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 6 - 84 DHORIBHAI DWARKADAS PATEL & SONS 16 00 000 2005-06 -DO- 86 JALARAM DEVELOPERS 3 00 000 29.09.04 INCORPORATED IN THE CASH FLOW PREPARED AND SUBMITTED IN THE CASE OF AOP. 120 SAMIR KANUBHAI PATEL 1 00 000 24.02.05 THIS TRANSACTION IS RECORDED IN THE BOOKS OF ASSESSEE FIRM. 125 JASHBHAI DAHYABHAI 5 00 000 9.2.05 -DO- 158 TUSHARBHAI P. KOTECHA 40 000 22.9.04 INCORPORATED IN THE CASH FLOW PREPARED AND SUBMITTED IN THE CASE OF AOP 161 VASANTBHAI B. SOMAIYA 18 00 000 29.9.04 -DO- 170 KAMAL AMBALAL PATEL 7 50 000 19.11.04 -DO- 184 VIMALBHAI KANUBHAI PATEL 50 550 16.16.04 -DO- 193 NIRAVKUMAR SOMAIYA 3 70 000 13.06.03 -DO- 243 LAXMI AGENCY 1 00 000 INCORPORATED IN THE CASH FLOW PREPARED AND SUBMITTED IN THE CASE OF AOP TOTAL 74 60 550 SO THE AO HAD MADE A LIST OF THE NAMES OF THE PERSONS BY WHOM THOSE PROMISSORY NOTES HAVE BEEN SIGNED ALONG WITH AMOUNT MENTIONED IN THE PROMISSORY NOTES. THE ASSESSEE HAS MAINLY CONTENDED THAT THE CASH FLOW WAS SUBMITTED THAT TO O IN THE CASE OF IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 7 - AOP. ON THE BASIS OF THE PERSON-WISE PROMISSORY NO TES THE TOTAL AMOUNT CAME TO RS.74 60 550/-. THE AO HAS FURTHER N OTED THAT THOSE PROMISSORY NOTES WERE OBTAINED BY THE ASSESSE E FROM THOSE PARTIES TO SECURE THE AMOUNT OF LOAN GIVEN TO THOSE BORROWERS. THOSE PROMISSORY NOTES HAVE SPECIFIED THE REPAYMENT OF LOAN PERIOD OF LOAN AND THE INTEREST OF LOAN CHARGED BY THE ASSESSEE. THE CONCLUSION OF THE AO WAS THAT THE STORY OF EXISTENC E OF AOP WAS NOTHING BUT A FABRICATED STORY. FOR THE FINANCIAL Y EAR 2003-04 THE LEAD YEAR THE AO HAS NOTED THAT AN AMOUNT OF RS.3 70 000/- WAS GIVEN ON 13.06.2003 TO SRI NIRAV KUMAR SOMAYO; HENC E TAXED IN THE A.Y. 2004-05. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 6. THE MAIN CONTENTION OF THE ASSESSEE WAS THAT THE AO WAS NOT JUSTIFIED IN MAKING THE ASSESSMENT IN THE STATU S OF PARTNERSHIP FIRM. ACCORDING TO THE ASSESSEE THE ASSESSMENT WAS TO BE MADE ON AOP. IT WAS CONTENDED THAT FEW PERSONS RELATED TO E ACH OTHER HAVE JOINED TOGETHER AND CONDUCTED THE BUSINESS OF MONEY LENDING JOINTLY. HENCE THE ASSESSMENT OUGHT TO HAVE BEEN M ADE ON AOP. IT WAS ALSO MENTIONED THAT THE SAID BUSINESS WAS ST ARTED AS PER AN ORAL UNDERSTANDING AMONGST THE MEMBERS . LEARNED CIT(A) WAS NOT CONVINCED AND HELD AS UNDER: I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF LEAR NED COUNSEL AS WELL AS GONE THROUGH THE RECORDS. ON PERUSAL OF ASS ESSMENT ORDER IT HAS BEEN NOTICED THAT THE ASSESSING OFFICER HAD BE ADOPTED THE STATUS OF THE PARTNERSHIP FIRM AS DECLARED IN THE RETURN O F INCOME BY THE APPELLANT. THE APPELLANT HAS NOT CLAIMED STATUS OF ASSOCIATION OF PERSONS (AOP) IN THE RETURN OF INCOME FILED IN RESP ONSE TO THE NOTICE ISSUED U/S 153A ON 20.07.2007 IN CONSEQUENCE TO THE SEARCH CONDUCTED IN M/S. JAYESH FINANCE GROUP OF CASES AND RETURN OF INCOME WAS FILED IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 8 - ON 31.03.2008 I.E. AFTER A GAP OF MORE THAN EIGHT MONTHS. HOWEVER FOR THE FIRST TIME THE APPELLANT CLAIMED THE STATU S OF ASSOCIATION OF PERSONS (AOP) IN ITS REPLY FILED ON 21.03.2008 I.E. PRIOR TO FILING OF RETURN ON 31.03.2008 IN WHICH STATUS OF THE APPELLA NT WAS CLAIMED AS PARTNERSHIP FIRM. IN OTHER WORDS THE APPELLANT HAD VOLUNTARILY ON ITS OWN DECLINED THE CLAIM OF STATUS OF ASSOCIATION OF PERSONS (AOP) AND FILED THE RETURN IN THE ORIGINAL STATUS OF PARTNERS HIP FIRM. IT MAY BE MENTIONED THAT THE STATUS OF THE APPELLANT HAS TO B E CLAIMED IN THE RETURN OF INCOME AND THE APPELLANT CANNOT BE CLAIM ANY OTHER/DIFFERENT STATUS SEPARATELY BY WAY OF FILING OF A SIMPLE REPLY ON A PIECE OF PAPER. THE FILING OF RETURN AND STATUS CLA IMED IN IT HAS A STATUTORY/SANCTITY. HOWEVER STATUS CANNOT BE CHANG ED BY WAY OF FILING THE LETTER/REPLY AS CLAIMED BY LEARNED COUNSEL IN H IS PLEADINGS. THEREFORE THE ASSESSING OFFICER HAS TO ADOPT THE S TATUS AS CLAIMED IN THE RETURN OF INCOME AND HE CANNOT BE GUIDED BY FIL ING A SIMPLE REPLY SINCE THE ASSESSING OFFICER HAS NO DISCRETIONARY PO WER TO CHANGE THE STATUS OF ANY ASSESSEE ON HIS OWN WITHOUT ANY FRESH MATERIAL IN HIS POSSESSION TO DO SO AT HIS DISCRETION SINCE THE STA TUS HAS TO BE NECESSARILY AND STATUTORILY ADOPTED BY THE ASSESSIN G OFFICER AS CLAIMED BY THE APPELLANT IN THE RETURN OF INCOME FI LED BY IT. IN OTHER WORDS A RETURN FURNISHED MAY BE ACCEPTED AS TO THE PARTICULAR STATUS OF THE ASSESSEE. HENCE THE ASSESSING OFFICER MAY P ROCEED ON THE BASIS OF THAT DECLARED STATUS IN THE RETURN OF INCOME FOR THE PURPOSE OF ASSESSMENT UNLESS THERE IS ANYTHING OTHERWISE IN TH E RETURN OR IN ASSESSMENT PROCEEDINGS TO SUGGEST DIFFERENT STATUS FOR ASSESSMENT PURPOSE. HOWEVER THE ASSESSEE CANNOT CLAIM THE STA TUS OTHER THAN THE DECLARED IN THE-RETURN OF INCOME BY WAY OF FILING A SIMPLE REPLY IN ADVANCE ON 21 03.2008 BEFORE ACTUAL FILING OF RETUR N TO DISCARD THE STATUS LIKELY TO BE DECLARED IN FUTURE IN THE RETUR N OF INCOME WHICH WAS FILED TEN DAYS LATER ON 31.03.2008. FURTHER IT MAY BE MENTIONED HERE THAT THE ASSESSING OFFICER IN THE PRESENT CAS E HAS A SPECIFIC AND ASSIGNED JURISDICTION U/S 127(2) OF INCOME-TAX ACT 1961 VIDE ORDER NO.BRD/CIT-LL/JURIS/2006-07 DATED 30.06.2006 ISSUE D BY THE CIT-II BARODA AFTER CONDUCT OF SEARCH U/S 132 ON THE BASI S OF WHICH CASE WAS TRANSFERRED TO HIM OF PARTNERSHIP FIRM M/S. JAYESH FINANCE ONLY W.E.F. 01.07.2006 (AND NOT OF ASSOCIATION OF PERSONS AS NO W CLAIMED BY THE APPELLANT SINCE THE RESIDUARY JURISDICTION LIES WIT H TERRITORIAL ASSESSING OFFICER). HENCE THE APPELLANT HAS FAILED TO PROVE THAT IT HAS FILED ANY RETURN IN THE STATUS OF AOP WITH THE TERR ITORIAL ASSESSING OFFICER HAVING NORMAL RESIDUAL JURISDICTION. FURTHE R IT WAS PLEADED BY LEARNED COUNSEL THAT THERE WAS ORAL UNDERSTANDING A MONG THE MEMBERS OF AOP FOR WHICH NO EVIDENCE WHATSOEVER WAS PRODUCED BY THE APPELLANT EITHER AT THE ASSESSMENT STAGE OR AT THE APPELLATE STAGE TO SUBSTANTIATE THE EXISTENCE OF THE AOP SINCE THE SAME STATUS WAS NOT CLAIMED IN THE RETURN OF INCOME. IT WAS HELD BY HON 'BLE BOMBAY HIGH COURT IN CASE OF CIT V/S. ASSOCIATED CEMENT AND STEEL AGENCIES (147 ITR 776) THAT WHERE A RETURN WAS SUBMITTED IN THE S TATUS OF A FIRM IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 9 - THE ASSESSMENT IN THE STATUS OF AN ASSOCIATION OF P ERSONS (AOP) WAS NOT PERMISSIBLE. SIMILAR VIEW WAS ALSO HELD BY HON'BLE RAJASTHAN HIGH COURT IN CASE OF CWT V/S. JAGDISH PURI (163 ITR 458). IN THE PRESENT CASE THE APPELLANT HAS FAILED TO CLAIM THE EXISTENCE OF THE STATUS ASSOCIATION OF PERSONS (AOP) IN THE RETURN O F INCOME. FURTHER THE ASSESSING OFFICER IS EMPOWERED TO CHANGE THE ST ATUS AFTER GIVING AN OPPORTUNITY TO BE HEARD IF THERE IS MATERIAL AVA ILABLE IN HIS POSSESSION REQUIRING TO CHANGE THE STATUS IN THE AS SESSMENT AS CLAIMED IN THE RETURN OF INCOME. HOWEVER IT IS NOT RIGHT O F THE ASSESSEE TO CLAIM THE STATUS INDEPENDENTLY AND SEPARATELY BY A REPLY WHEREAS IT FAILED TO CLAIM THE SAME STATUS IN THE RETURN OF IN COME FILED TEN DAYS LATER THAN THE REPLY FILED VOLUNTARILY. THE CASE LA WS RELIED UPON BY LEARNED COUNSEL ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE SINCE FACTS OF THE PRESENT CASE ARE DIFFERENT FROM THE FACTS OF THE CASES RELIED UPON BY LEARNED COUNSEL. THEREFORE THE CONT ENTIONS OF LEARNED COUNSEL CANNOT BE ACCEDED TO WHICH ARE HERE BY REJECTED. KEEPING IN VIEW OF ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS RESPECTFULLY FOLLOWING THE JUDGMENTS (SUPRA) TH ERE IS NO INFIRMITY IN THE STATUS ADOPTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER ON THE BASIS OF STATUS CLAIMED BY THE APPELLANT IN THE RETURN FILED IN RESPONSE TO NOTICE ISSUED U/S 153A. HENCE THE VALI DITY OF THE STATUS AS FIRM ADOPTED IN THE ASSESSMENT ORDER IS HEREBY CONF IRMED AND FIRST GROUND OF APPEALS HEREBY DISMISSED. BEING AGGRIEVED NOW THE ASSESSEE IS FURTHER IN APP EAL BEFORE US IN ALL THE THREE YEARS. 7. FROM THE SIDE OF THE ASSESSEE LEARNED AR S HRI S.N. SOPARKAR AND SHRI MUKUND BAKSHI APPEARED. THEY HAS PLEADED T HAT THE FOLLOWING PERSONS HAVE STARTED THE BUSINESS OF FINA NCING: 1. SHRI JAYESH R. PATEL. 2. SHRI NIKUL C. PATEL 3. SHRI CHHOTABHAI PATEL 4. SHRI MUKESHBHAI J. PATEL 5. SHRI RAMESHBHAI J. PATEL 6. SHRI ROHITBHAI PATEL; AND 7. SMT. ALKABEN N. PATEL 7.1 LEARNED AR MR. SOPARKAR SENIOR ADVOCATE H AS INFORMED THAT THE PARTNERSHIP UNDER WHICH THE ASSESSMENT WAS MADE WAS IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 10 - CONSTITUTED BY TWO PERSONS NAMELY JAYESH PATEL AN D SRI NIKUL C. PATEL. HOWEVER THE BUSINESS OF THE AOP WAS LOOKED AFTER BY ALL THE MEMBERS. HE HAS ALSO TRIED TO EXPLAIN THE ACTIV ITIES HANDLED BY THOSE PERSONS. A QUERY HAS BEEN RAISED FROM THE BEN CH THAT WHETHER THE AOP HAD FILED ANY RETURN OF INCOME. THE LEARNED AR HAS INFORMED THAT NO RETURN WAS FILED BY THE AOP . HIS ARGUMENT WAS THAT A TAX CAN ONLY BE RECOVERED FROM THOSE PERSONS WHO HAVE EARNED THE INCOME. THE BUSINESS WAS NOT CA RRIED OUT BY THE FIRM BUT BY THE GROUP OF PERSONS AND THEY HAVE JOINED HANDS WITH THE INTENTION TO EARN PROFIT THEREFORE THE A CTIVITY OF THE FINANCING WAS REQUIRED TO BE ASSESSED IN THE STATUS OF THE AOP. FEW CASE LAWS RELIED UPON WERE : 1. ITO VS. CH. ATCHIAH 218 ITR 239 (SC) 2. M.V. VALLIAPPAN & ORS. VS. CIT 170 ITR 238 (MAD ) 3. ACIT VS. MINOR JANAK PATEL 80 TTJ (AHD) 756 4. ITO VS. K. VENKATESH DUTT 87 TTJ (BANG) 494 5. CIT VS. SRIRAM JAGANNATH 250 ITR 689 (RAJ) (HC) LEARNED AR HAS INFORMED THAT CERTAIN DOCU MENTS WERE SEIZED FROM THE RESIDENCE OF SRI NIKUL C. PATEL SUC H AS BALANCE SHEET AS ON 30 TH OF MAY 2004 30 TH OF SEPTEMBER 2004 ETC. THOSE BALANCE- SHEETS HAVE DISCLOSED ASSETS AND LIABILITI ES IN RESPECT OF THE MONEY LENDING BUSINESS. THOSE PAPERS DID NOT BE LONG TO THE FIRM AND MR. NIKUL C. PATEL BEING THE MAIN PERSON M ANAGING THE AFFAIRS OF THE AOP THEREFORE THOSE ASSETS AND LIA BILITIES WERE CONNECTED WITH THE AOP BUSINESS. IN RESPECT OF THE ARRANGEMENT OF THE FINANCE LEARNED AR HAS DRAWN OUR ATTENTION AT PAGE 22 OF THE PAPER BOOK CONSISTING THE NAMES OF 17 PERSONS FROM WHOM A FINANCE OF RS.3 57 67 032/ - WAS STATED TO BE ARRANGED BY THE ALLEGED AOP. ON THAT PAGE THERE WAS A LIST OF THE P ERSONS TO WHOM IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 11 - THE LOAN WAS ADVANCED. LEARNED AR THUS REITERATED T HAT THE SAME WAS CONNECTED WITH THE BUSINESS OF THE AOP. HE HAS ALSO PLEADED THAT THE ASSETS WHICH WERE MORTGAGED WERE REGISTERE D IN THE NAME OF THE FAMILY MEMBERS ON BEHALF OF THE AOP. IN CASE OF DEFAULT ON THE PART OF THE BORROWER THEREFORE THE AOP COULD TAKE THE ACTION. THAT FACT OF THE REGISTRATION OF THE MORTGAGED PROP ERTY IN THE NAME OF THE MEMBERS OF THE FAMILY THUS PROVED THAT THE B USINESS WAS NOT CARRIED BY THE FIRM BUT BY A GROUP OF PERSONS FORMI NG AOP. 8) FROM THE SIDE OF THE REVENUE SHRI D.S. KALYAN AND SRI T.P.KRISHNA KUMAR LEARNED CIT-DRS APPEARED AND PLEADED THAT THERE WAS NO EVIDENCE AT ALL IN RESPECT OF THE CREA TION OF THE AOP. IT WAS A CONCOCTED STORY HAVING NO SUPPORTING EVIDE NCE. DURING THE COURSE OF SEARCH PROCEEDINGS STATEMENT OF ONE SRI NIKUL C. PATEL WAS RECORDED AND AT THAT TIME HE HAD OFFERED AN AMOUNT OF RS.80 00 000/- BUT THERE WAS NO MENTION O F AOP BY HIM. THE REVENUE HAS CONDUCTED THE SEARCH ON THE FIRM A ND THE GROUP OF CASES AND THEREUPON ISSUED THE NOTICED U/S .153A INVITING THE RETURN OF THE ASSESSEE. IN COMPLIANCE THE ASSE SSEE HAD FURNISHED HIS RETURN OF INCOME AND THAT TOO WAS BY THIS ASSESSEE IN THE STATUS OF FIRM . THERE WAS NO INFORMATION EITHER IN THE POSSESSION OF THE REVENUE DEPARTMENT OR INFORMED BY THE ASSESSEE THAT THERE WAS AN AOP ON WHICH A SEARCH ACTION COUL D HAVE BEEN MADE. THE EXTRACT OF CERTAIN ACCOUNT FOUND AT THE R ESIDENCE OF MR. NIKUL C. PATEL WERE THE DETAILS OF THE UNACCOUNTED INCOME OF THE FIRM. EVEN THE BANK ACCOUNTS HAVE ALSO NOT DEMONSTR ATED THAT THOSE HAD NO RELATION WITH THE BUSINESS OF THE FIRM . ALTHOUGH THE IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 12 - BANKS ACCOUNT WERE MAINTAINED BY THOSE PERSONS BU T TRANSACTION HAD BELONGED TO THE BUSINESS OF THE FIRM. LD. DR HA S PLEADED THAT THE ASSESSEE HAS INFORMED THAT ABOUT 17 PERSONS HAV E CONTRIBUTED THE FUNDS THEN WHY ONLY 15 PERSONS WERE NAMED AS T HE MEMBERS OF AOP? INSTEAD ONLY15 PERSONS HAVE CLAIMED TO BE T HE MEMBERS OF THE AOP. HE HAS ALSO DISTINGUISHED THE CASE LAWS CITED FROM THE SIDE OF THE ASSESSEE. LEARNED DR HAS MAINLY CONTEST ED THAT THERE WAS NO EVIDENCE ON RECORD TO ESTABLISH THE PROFIT S HARING RATIO BY THE MEMBERS OF THE AOP. EVEN THE RETURN OF THE FIRM WAS FILED BY THE ASSESSEE IN THE NORMAL COURSE IN ANY CASE NOT UNDER PROTEST. HE HAS PLACED STRONG RELIANCE ON THE PAPER BOOK FIL ED BY THE REVENUE DEPARTMENT CONTAINING THE STATEMENT OF SRI NIKUL C. PATEL AND THE SEIZED MATERIAL RECOVERED FROM THE RESIDENCE OF MR. MUKESH PATEL AND MR NIKUL C. PATEL. 9) WE HAVE HEARD THE SUBMISSIONS OF BOTH THE SID ES AT SOME LENGTH. WE HAVE EXAMINED THE FACTS OF THE CASE. THE UNDISPUTED FACT IS THAT THE REVENUE DEPARTMENT HAD CARRIED OUT THE SEARCH OPERATION IN THE NAME OF THE ASSESSEE A REGISTERED FIRM ON 19.01.2006. REVENUE HAS INFORMED THAT THE ENTIRE SE ARCH RELATED PROCEEDINGS/ AUTHORIZATIONS ETC. WERE IN TH E NAME OF THE SAID REGISTERED FIRM. THEREAFTER ALL THE PROCEEDINGS IN CONSEQUENCE THEREUPON WERE STARTED IN THE NAME OF THE FIRM. AS FAR AS THE INITIATION OF THE SEARCH PROCEEDINGS IN THE NAME OF THE FIRM BY THE REVENUE DEPARTMENT WAS CONCERNED THE S AME WAS STARTED ON THE BASIS OF THE INFORMATION RELATED TO THE FIRM. REVENUE DEPARTMENT EVEN DID NOT HAVE THE IOTA OF INFORMATIO N ABOUT THE IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 13 - EXISTENCE OF ALLEGED AOP OR THAT THERE WAS AN AOP O F THE SAID MEMBERS. IN THE ABSENCE OF ANY INFORMATION ABOUT TH E EXISTENCE OF THE AOP THE REVENUE DEPARTMENT WAS JUSTIFIED IN IM PLEMENTING THE SEARCH PROCEEDINGS ON THE FIRM. WE HAVE EXAMINE D THE STATEMENTS AND THE RELEVANT SEIZED MATERIAL TO KNOW AS TO WHETHER THE SAME BELONGED TO THE AOP AS CLAIMED/ALLEGED BY THE ASSESSEE. WE HAVE FOUND THAT THE REVENUE DEPARTMENT WAS FULLY JUSTIFIED IN CONDUCTING THE SEARCH OPERATION ON A PERSON WHOSE R ECORDS WERE AVAILABLE WITH THE REVENUE DEPARTMENT. WE HEREBY EN DORSE THE VIEW OF THE REVENUE DEPARTMENT THAT MERELY BY MAKIN G AN ASSERTION THAT THE AOP WAS IN EXISTENCE THE SAME C OULD NOT BE ACCEPTED UNLESS AND UNTIL SUPPORTED BY THE CLINCHI NG CORROBORATIVE EVIDENCES. IN THE ABSENCE IT WAS NOTHING BUT A BAL D STATEMENT. IT WAS ASKED ON NUMBER OF OCCASIONS TO PLACE ON RECORD ANY DOCUMENTARY EVIDENCE ESTABLISHING THE EXISTENCE OF THE AOP BUT THE ASSESSEE HAD FAILED TO PLACE ANY SUCH MATERIAL ON RECORD. NATURALLY AN AOP OUGHT TO HAVE BEEN FORMED BY EXEC UTION OF SOME DOCUMENT OR DEED DULY SIGNED BY MEMBERS OF THE AOP. CONTRARY TO THIS LEARNED AR HAS PLEADED THAT THE AOP WAS FORMED THROUGH ORAL AGREEMENTS BETWEEN THOSE MEMBER S. THIS PLEA HAS NO BASIS; HENCE THE SAME IS HEREBY REJECT ED. BEFORE THE DATE OF SEARCH OR EVEN AFTER THE COMPLETION OF SEARCH THERE WAS NO EVIDENCE ALTOGETHER IN RESPECT OF THE EXISTENCE OF THE AOP. THE ASSESSEE HAD UTTERLY FAILED TO PLACE ON RECORD ANY CORROBORATIVE EVIDENCE IN SUPPORT OF THE ALLEGED CLAIM. THE DECISION SUCH AS CH. ATCHAIAH 218 ITR 239 (SUPRA) WAS DELIVERED TO SETTLE AN ALTOGETHER DIFF ERENT CONTROVERSY. IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 14 - THE CONTEXT AND THE ISSUE BEFORE THE HONBLE COURT W AS DISSIMILAR FROM THE ISSUE IN HAND. EVEN THE DECISION OF MV VALLIAPPAN AND OTHERS 170 ITR 238 (SUPRA) WAS IN THE CONTEXT OF CHARGING SECTION. THESE ORDERS ARE CONNECTED WITH THE GENER AL PROVISIONS OF IT ACT. UNDISPUTEDLY A RIGHT PERSON IS TO BE T AXED AND THE ASSESSMENT OUGHT TO HAVE BEEN MADE IN RESPECT OF TH AT PERSON. BUT PRESENTLY BEFORE US THIS IS NOT THE CONTROVERSY BUT THE CONTROVERSY IS THAT THE ASSESSEE HAS FAILED TO ESTABLISH EVEN T HE STATUS AS PER LAW OF THAT PERSON. EVEN THE PRESENCE OF THE BAN KS ACCOUNT HAVE NOT ESTABLISHED REMOTELY THE FORMATION OF TH E AOP. OTHERWISE ALSO AN ACCOUNT OF THE FIRM CAN BE OPENE D IN THE NAME OF THE PERSONS EITHER INDIVIDUALLY OR JOINTLY BUT THAT DOES NOT ESTABLISH THE STATUS FOR INCOME TAX PURPOSE. THAT APART FOR OPENING AN ACCOUNT IN THE BANK A DECLARATION WHETH ER INDIVIDUAL/HUF/AOP/FIRM IS REQUIRED TO BE MADE ON THE APPLICATION FORM HOWEVER THAT TOO IN SUPPORT OF T HE CLAIM IS NOT PRODUCED. FURTHER THE PARTNERS HAVE THE OPTION TO INVOLVE THE FAMILY MEMBERS. IN SUCH A SITUATION THOSE FAMILY ME MBERS DO NOT RUN THE BUSINESS IN THEIR INDIVIDUAL CAPACITY BUT T HEY DEFINITELY RUN THE BUSINESS IN THE NAME OF THE FIRM; AS IF REPRESE NTING THE AFFAIRS OF THE FIRM. IN ALL RESPECT SUCH PERSONS WHO HAVE D EALT WITH BUSINESS WERE NOT IN THE CAPACITY OF A MEMBER OF A N ASSOCIATION OF PERSONS BUT REPRESENT THE BUSINESS OF THE FIRM. IF THE AOP WAS IN EXISTENCE THEN THE SAME COULD HAVE BEEN INFORMED TO THE REVENUE DEPARTMENT AT THE TIME OF THE SEARCH. IN SUPPORT OF THIS FINDING WE PLACE RELIANCE ON ASSOCIATED CEMENT AND STEEL AGENCIES 147 ITR 776 (BOM.). IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 15 - 9.1) UNDER THE SECTION OF DEFINITIONS THE ACT PRESCRIBES THAT PERSON INCLUDES AN ASSOCIATION OF PERSON OR BOD Y OF INDIVIDUALS WHETHER INCORPORATED OR NOT AS PER SECTION 2(31) O F IT ACT. WE HAVE EXAMINED THIS SECTION IN SOME DETAIL BELOW. 9.2) AS FAR AS THE ASSESSMENT OF AN AOP IS C ONCERNED THE LAW IS ABSOLUTELY CLEAR THAT THE STATUS OF AOP MUST EXIST PERFECTLY IN THE EYES OF LAW. UNDER THE DEFINITION OF PERSON S UNDER SECTION 2(31) AN AOP IS A JUDICIAL ENTITY THEREFORE ITS EXISTENCE SHOULD BE RECOGNIZED BY A JUDICIAL AUTHORITY. SUCH JUDICIA L ENTITY IS THEREFORE REQUIRED TO BE FORMED BY OBSERVING CERTAI N JUDICIAL NORMS. ONLY A CLAIM NOT SUPPORTED BY AN INDEPENDEN T LEGAL SANCTION IS NOTHING BUT A MERE VERBOSITY. EVEN THE FALLOUT OF THE DECISION OF ITO V/S. CH. ATCHAICH 218 ITR 239 (SC) (SUPRA) IS THAT IF THE PARTIES OFFER THEIR RESPECTIVE INCOME A ND ALSO GET THEMSELVES ASSESSED INDEPENDENTLY BUT IF THE AO WA NTS TO INITIATE ACTION FOR A COLLECTIVE ASSESSMENT UNDER THE STATUS OF AOP THEN SUCH APPROACH IS GOING TO CREATE A HARDSHIP. RATHER IN A SITUATION WHEN AN ASSESSMENT HAS REGULARLY BEEN MADE CONTINUO USLY IN THE HANDS OF THE FIRM THEN THE AO SHOULD BE PRECLUDED T O TAKE ANY ACTION TO ASSESS UNDER ANY OTHER STATUS. WHILE STUD YING THIS ISSUE OF ALLEGED EXISTENCE OF AOP WE HAVE COME ACROSS A PRECEDENT NAMELY MILAN SUPARI STONES 184 ITR 106 (MP) WHEREIN A RAID WAS CONDUCTED AT THE BUSINESS PREMISES OF THE FIRM AS WELL AS AT THE RESIDENCE OF THE PARTNERS. THEY HAVE FOUND THAT THE ASSESSEE FIRM AND CERTAIN OTHER FIRMS HAVE COMMON PARTNERS THEREFORE ISSUED NOTICE U/S. 148 TO ASSESS THE GROUP OF FIRMS AS ASSOCIATION IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 16 - OF FIRMS. IT WAS HELD THAT TO TREAT THE ASSESSEE A ND OTHER FIRMS AS ASSOCIATION OF PERSONS WAS NOT VALID BECAUSE OF T WO REASONS:- (A) THERE WAS NOT EVIDENCE TO SHOW THAT THE ASSESSEE FO RMED THE ALLEGED AOP AND (B) THE REGISTRATION OF THE FIRM WA S NOT CANCELLED MEANING THEREBY THE BUSINESS OF THE FIRM WAS IN EXI STENCE. THEREFORE IN THE ABSENCE OF THESE INGREDIENTS IT WA S UNJUSTIFIED ON THE PART OF THE ASSESSEE TO STRESS UPON TO ASSESS A S AOP. 9.3) AOP IS A JURISTIC LEGAL ENTITY . THUS BEING A JUDICIAL PERSON IS SUBJECT TO ASSESSMENT THUS HAS TO BE FO RMED BY COMBINATION OF PERSONS FOR THE PURPOSE OF A JOINT V ENTURE DULY RECOGNIZED BY AN AUTHORITY OF LAW. IF POSSIBLE AND IN THE INTEREST OF CLAIMANT THE CREATION OF AOP CAN ALSO BE WITNES SED BY AN INSTRUMENT. THE LOCUS-CLASSIUS ON THE SUBJECT AS TO WHAT CONSTITUTE AOP THE HONBLE APEX COURT IN THE CASE OF INDIRA BALAKRISHNA 39 ITR546(SC) HAS OPINED THAT A GROUP OF PERSONS CAN BE HELD TO BE LIABLE TO ASSESSMENT AS AN ASSOCIATION OF PERSON S BUT THERE SHOULD BE A DEFINITE CREATION. IN ORDER TO CONSTITU TE AN ASSOCIATION PERSONS MUST JOIN IN A COMMON PURPOSE OR COMMON ACT ION AND THE OBJECT OF THE ASSOCIATION MUST BE TO PRODUCE INCOME BUT IT IS NOT ENOUGH THAT THE PERSONS RECEIVE THE INCOME JOINTLY. 10. IN THIS MANNER AS ALSO UNDER THE TOTALITY OF TH E FACTS AND CIRCUMSTANCES OF THE CASE GROUNDS BEING IDENTICAL FOR ALL THE THREE YEARS ARE HEREBY REJECTED. IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 17 - B. REVENUESS APPEAL (FOR A.YS. 2005-06 AND 2006-07 ) (ITA NO. 2691 & 2692/AHD/2009) 11. REVENUES APPEALS ARE ARISING FROM THE ORDERS O F LEARNED CIT(A)-IV BOTH DATED 31 ST MARCH 2009. FOR THESE TWO YEARS REVENUE HAS RAISED ALMOST IDENTICALLY WORDED GROUND S OF APPEAL REPRODUCED FROM THE LEAD YEAR I.E. A.Y. 2005-06 A S UNDER: THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS AND CI RCUMSTANCES OF THE CASE IN DIRECTING AO TO ALLOW THE TELESCOPING OF ADDITION OF RS.3 60 38 841 /- (1 15 49 288/- FOR A.Y. 2006-07) ON ACCOUNT OF UNEX PLAINED LOANS RECEIVED BY THE ASSESSEE AGAINST INCOME OF AOP AFTER VERIFYI NG FROM THE SEIZED MATERIAL AVAILABLE WHEN ASSESSEE HAS NOT FILED RET URN OF AOP. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE IN DIRECTING AO TO ALLOW THE TELESCOPING OF ADDITION OF RS.31 73 559/- ON ACCOUNT OF PROFIT EARNED AS PER SEIZED ANNEXURE A-9 ASSESSEE AGAINST INCOME OF AOP AFTER VERIFYING FROM THE SEIZED MATERIAL AVAILABLE WHEN ASSESSEE HAS NOT FILED RETURN OF AO P. 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE IN DIRECTING AO TO VERIFY FROM THE SEIZED MATERIAL AVAILABLE IN THE POSSESSION OF AO WHETHER ALL ADDITIONS ARE COVERED IN TELESCOPING OF INCOME OF AOP ON THE BASIS OF PROFIT EARNED FROM UNACCOUNTED MONEY LENDING BUSINESS AS WELL AS WORKING OUT OF ADDITION ON THE BASIS OF INCREMENTAL PEAK CREDIT WHICH AMOUNTS TO SETTING ASIDE THE ASSESSMENT. 12. AT THE OUTSET WE HAVE NOTED THAT THE GROUNDS R AISED BY THE REVENUE DEPARTMENT ARE RAISING ISSUES REVOLVING ARO UND THE COMPUTATION OF THE CORRECT INCOME IN THE HANDS OF T HE FIRM INSTEAD AOP. LEARNED CIT(A) HAS DECIDED THE MERITS OF THE C ASE BY DISCUSSING EACH ADDITION AND DISMISSED THE PLEA OF THE ASSESSEE THAT THE ASSESSMENT BE CHANGED TO THE STATUS OF AOP BUT THE ADJUSTMENT WOULD BE ALLOWED. RATHER LEARNED CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT THE AO HAD CORRECTLY MADE THE ASSESSMENT IN THE STATUS OF PARTNERSHIP FIRM. IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 18 - 13. ALTERNATIVELY THE ASSESSEE HAS RAISED A PLEA THAT A PEAK OF ALL THE TRANSACTIONS COULD HAVE BEEN CONSIDERED BY THE AO. IN THIS CONNECTION THE ARGUMENTS OF LEARNED COUNSEL B EFORE LEARNED CIT(A) WAS AS PER PARA 17.1 AS FOLLOWS:- THE FIFTEENTH GROUND RAISED IN THIS APPEAL IS THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING AN ADDITION OF RS.2 55 150/- IN RESPECT OF PROFIT EARNED ON SALE OF FLAT FOR A CONSIDERATION OF RS.6 71 000/- AND ADVANCE GIVEN OF RS. 4 00 000/- TO SHRI S.K. SETIA (KULVINDERSING H. SETIA) AND INTEREST OF RS. 15 850/- ON THE BASIS OF ANNEXURE - A/19 (PAGE NO.1 14 & 115) SEIZED FROM THE RESIDENCE OF SHRI NIKUL C.PATEL PARTNER OF THE FIRM. THIS INVESTMENT WAS MADE OUT OF THE BALANCE FROM THE CASH FLOW STATEMENT WHERE THE UNEXPLAINED RECEIPT IS QUANTIFIED AS UNACCOUNTED INCOME. IN THE COURSE OF SEARCH SHRI NIKUL PATEL VIDE HIS STATEMENT DATED 20.01.2006 I.E . THE DATE OF SEARCH HAD MADE A DISCLOSURE OF AN AMOUNT OF RS. 80.00 LAKHS I N RESPONSE TO QUESTION NO. 50. ON THE ABOVE THE APPELLANT PRAYS THAT THE SAME BE CONSIDERED AS COVERED AND TELESCOPED IN SUCH UNDISCLOSED INCOME SHOWN IN THE CASH FLOW STATEMENT. LEARNED COUNSEL PLEADED FURTHER THAT THE PEAK OR HIGHEST OF ALL THE TRANSACTIONS TAKEN TOGETHER DURING THE FINANCIAL YE AR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION IS THE METHOD A DOPTED BY THE ASSESSING OFFICER FOR CALCULATION OF UNDISCLOSED INCOME ON TH E BASIS OF PEAK CREDIT WORKED OUT IN THE CASH FLOW STATEMENT PREPARED AFTE R SEARCH IN THE FORM OF CASH BOOK PREPARED ON THE BASIS OF SEIZED MATERIAL COPY OF WHICH WERE SUPPLIED BY THE DEPARTMENT TO THE APPELLANT. ALL TH E TRANSACTIONS SHOULD HAVE BEEN CONSIDERED JOINTLY. SO THE ADDITION OF RS.1 0 4 490/- IN RESPECT OF INTEREST INCOME RELATABLE TO ADVANCE GIVEN TO SHRI S.K. SETI A ON THE BASIS OF ANNEXURE - A/19 (PAGE NO. 114 & 115) SEIZED FROM THE RESIDEN CE OF SHRI NIKUL C.PATEL PARTNER OF THE FIRM IS COVERED BY UNDISCLOSED INCO ME WHICH IS CONTENDED TO BE REFLECTED IN THE CONSOLIDATED CASH FLOW STATEMEN T OF THE FIRM. 17.1 LEARNED COUNSEL PLEADED THAT THE PEAK OR HIGHE ST OF ALL THE TRANSACTIONS TAKEN TOGETHER DURING THE FINANCIAL YE AR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION IS THE METHOD A DOPTED BY THE ASSESSING OFFICER FOR CALCULATION OF UNDISCLOSED INCOME ON TH E BASIS OF PEAK CREDIT WORKED OUT IN THE CASH FLOW STATEMENT PREPARED AFTE R SEARCH IN THE FORM OF CASH BOOK PREPARED ON THE BASIS OF SEIZED MATERIAL COPY OF WH ICH WERE SUPPLIED BY THE DEPARTMENT TO THE APPELLANT. ALL TH E TRANSACTIONS SHOULD HAVE BEEN CONSIDERED JOINTLY. SO ADDITION MADE IS COVER ED/UNDISCLOSED INCOME WHICH IS CONTENDED TO BE REFLECTED IN THE CONSOLIDA TED CASH FLOW STATEMENT OF THE FIRM. ON THE ABOVE THE APPELLANT PRAYS THAT TH E SAME BE CONSIDERED AS COVERED AND TELESCOPED IN SUCH UNDISCLOSED INCOME S HOWN IN THE CASH FLOW STATEMENT. 25.0 THE TWENTY-THIRD GROUND RAISED IN THIS APPEAL IS REGARDING CLAIM OF THE APPELLANT OF PRINCIPLE OF TELESCOPING AND MATCHING OF INCOME OF TOTAL UNACCOUNTED ACTIVITIES CARRIED OUT OF THE APPELLANT ON THE BASIS OF CASH AND FUND FLOW STATEMENT SUBMITTED BY THE APPELLANT BEFO RE THE ASSESSING OFFICER. IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 19 - LEARNED COUNSEL PLEADED THAT THE TOTAL UNACCOUNTED BUSINESS WAS CONDUCTED OUT OF THE BOOKS OF ACCOUNT AND ON THE BASIS OF WHI CH CASH FLOW STATEMENT WAS PREPARED WHICH SHOULD HAVE BEEN TAKEN INTO CONSIDER ATION WHILE MAKING THE ADDITIONS IN THE PRESENT CASE WHERE THE UNEXPLAINED RECEIPT IS QUANTIFIED AS UNACCOUNTED INCOME. LD. COUNSEL FURTHER CONTENDED T HAT IF THEORY OF PEAK IS ACCEPTED AS CORRECT METHOD OF WORKING OUT OF UNDISC LOSED INCOME THEN ALL OTHER ADDITIONS ARE NOT REQUIRED TO BE MADE. HENCE LD. COUNSEL FURTHER CONTENDED THAT WHEN THERE IS AN ADDITION OF PEAK BA LANCE THERE CANNOT BE SEPARATE ADDITION IN RESPECT OF DIFFERENT ITEMS WHI CH ARE EITHER INCLUDED OR MADE OUT OF PEAK BALANCE. THE AO OUGHT TO HAVE REDU CED THE INCREMENTAL PEAK IN THE NEXT YEAR TO THE EXTENT OF THE UNDISCLO SED INCOME DECLARED BY THE APPELLANT DURING PARTICULAR EARLIER ASSESSMENT YEA R AND DIFFERENCE SHOULD HAVE BEEN ADDED. 14. AFTER CONSIDERING THE AFOREMENTIONED SUBMISSION OF THE ASSESSEE LEARNED CIT(A) HAS GIVEN DIRECTION AS FOL LOWS: KEEPING IN VIEW OF ABOVE FACTS AND CIRCUMSTANCES O F THE CASE AS WELL AS RESPECTFULLY FOLLOWING THE JUDGMENTS (SUPRA) ALL T HE TRANSACTIONS SHOULD HAVE BEEN CONSIDERED JOINTLY ON THE BASIS OF PEAK CREDIT REFLECTED IN THE CASH FLOW STATEMENT ON THE BASIS OF SEIZED DOCUMENTS. SO ASSESSING OFFICER IS DIRECTED TO VERIFY FROM SEIZED MATERIAL AVAILABLE IN HIS POSSESSION WHETHER ALL ADDITIONS ARE COVERED IN THE TELESCOPING OF INCOME EARNED ON THE BASIS OF UNACCOUNTED BUSINESS AND THE AMOUNT OF PROFIT EARNED FROM UNACCOUNTED MONEY LENDING BUSINESS AS WELL AS WORKING OUT OF ADDITION ON THE BASIS OF INCREMENTAL PEAK CREDIT. HENCE THE TWENTY-THIRD GR OUND OF APPEAL IS PARTLY ALLOWED. 15. ON THIS ISSUE WE HAVE HEARD BOTH THE SIDES. IT IS AN ESTABLISHED WAY OF COMPUTATION OF INCOME WHERE EVER THERE IS RECYCLING OF CASH IN A FINANCIAL BUSINESS TO WORK OUT THE PEAK CREDIT. PARTICULARLY IN A SITUATION WHEN NO REGULA R OR PROPER BOOKS OF ACCOUNT ARE MAINTAINED BY THE ASSESSEE THEN A CASH FLOW STATEMENT IS GENERALLY PREPARED. THE DEPARTMENT THEN MAKES AN ADDITION ON THE BASIS OF THE PEAK CREDIT AS APPEARING IN THE CASH- FLOW-STATEMENT IF THERE IS RECYCLING OF CASH. THAT PEAK CREDIT IS THUS TREATED AS AN UNEXPLAINED INCOME OF THE ASSESS EE. BUT THAT WORKING OUGHT NOT TO BE FINAL. CERTAIN OTHER FACTOR S ARE ALSO IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 20 - REQUIRED TO BE TAKEN INTO ACCOUNT AS SUGGESTED IN THE GROUNDS OF APPEAL BY THE REVENUE. AS FAR AS THE ASSESSEE IS CO NCERNED THE UNDISPUTED FACT IS THAT ON THE BASIS OF THE SEIZED MATERIAL A CASH FOLLOW STATEMENT WAS PREPARED WHICH WAS SUPPLIED TO THE AO. AFTER THE SEARCH THE WORKING OF THE SAID CASH FLOW STATEMENT WAS THEREFORE REQUIRED TO BE EXAMINED BY THE AO THAT TOO AFTER DUE VERIFICATION FROM THE SEIZED MATERIAL. WE ARE OF TH E VIEW THAT A CASH FLOW STATEMENT WHICH WAS PREPARED ON THE BASIS OF THE SEIZED MATERIAL MUST NOT BE IGNORED. ONCE THE ASSESSEE IS IN THE BUSINESS OF FINANCE THEN THE ASSESSEE IS REQUIRED T O FURNISH THE CASH FLOW STATEMENT SO AS TO ARRIVE AT THE FIGURE OF TH E INCREMENTAL BOOK CREDIT AS PER THE PREVALENT PRACTICE. WE ARE TAKI NG THIS VIEW ON THE BASIS OF DECISION OF HONBLE GUJARAT HIGH COURT PRONOUNCED IN THE CASE OF PIPUSH KUMAR O. DESAI 247 ITR 568 (GUJ.) WHEREIN A CASH FLOW WAS PREPARED BY THE ASSESSEE AF TER THE CONCLUSION OF THE SEARCH. THAT WAS DIRECTED TO BE C ONSIDERED ESPECIALLY WHEN THERE WAS ABSENCE OF BOOKS OF ACCOU NT. ON THE BASIS OF THE CASH FLOW STATEMENT THE AVAILABILITY O F CASH WAS ACCEPTED. NEXT IN THE CASE OF SWAROOP CHANDRA KOJURAM 235 ITR 732 WHEREIN THE QUESTION BEFORE THE HONBLE HIGH COUR T WAS WHETHER THE BENEFIT OF PEAK CREDIT THEORY COULD OR COULD NOT BE GRANTED TO THE ASSESSEE. THE HONBLE COURT HAS HELD THAT IT WAS NOT A REFERABLE QUESTION OF LAW. IT WAS PLEADED QUOTE IT WAS SUBMITTED THAT A REFINEMENT OR EXTENSION OF THE PEA K THEORY OCCURS WHERE THE CREDITS APPEAR NOT IN THE SAME ACC OUNT BUT IN THE ACCOUNTS OF DIFFERENT PERSONS. IF THE GENUINENE SS OF ALL THE IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 21 - PERSONS IS DISBELIEVED AND ALL THE CREDITS APPEARIN G IN THE DIFFERENT ACCOUNTS ARE HELD TO BE ASSESSEES OWN MO NEY THE ASSESSEE WILL BE ENTITLED TO A SET OFF AND A DETERM INATION OF THE PEAK CREDIT AFTER ARRANGING ALL THE CREDITS IN CHRO NOLOGICAL ORDER. IT WAS ADMITTED THAT THESE PROPOSITIONS SHOULD NOT HOWEVER BE TREATED AS PROPOSITIONS OF LAW. THEY ARE INFERENCES BASED ON NORMAL PROBABILITIES AND CAN BE DISPLACED BY MATERI AL ON RECORD WHICH MAY INDICATE FACTS TO THE CONTRARY . UNQUOTE. IT WAS HELD BY THE HONBLE COURT THAT THE THEORY OF PEAK CREDIT PR ESUPPOSES AN ADVERSE FINDING AGAINST THE PETITIONER THAT CERTAIN BORROWINGS MADE BY THE PETITIONER FROM THE CASH CREDITOR WERE THE B ORROWINGS FROM NON-GENUINE CREDITORS AND THEREFORE THE SAME IS TO BE TREATED AS UNEXPLAINED FUND-BORROWING TO THE ASSESSEE. HAVING FOUND THE BORROWINGS HAD BEEN MADE FROM VARIOUS CHARACTERS WH ICH WERE NOT GENUINE THE QUESTION OF LAW ARISES SO AS TO DE TERMINE THE QUANTUM OF THE ADDITION TO BE MADE UNDER THE THEORY OF INCREMENTAL PEAK CREDIT TO BE APPLIED SO AS TO ASCE RTAIN THE MAXIMUM AMOUNT WHICH THE PETITIONER HAD IN THE BOOK S OF ACCOUNT AT PARTICULAR DATE DURING THE YEAR WHICH IS TO BE T REATED AS NON- GENUINE. SO THE LOGIC BEHIND THE APPLICABILITY OF THE PEAK CREDIT THEORY IS THAT IF THE BORROWING FROM VARIOUS PERSON S IS TO BE TREATED AS NON-GENUINE THEN SYSTEMATIC REPAYMENT TO SUCH PE RSON SHOULD ALSO BE TREATED AS NON-GENUINE. SUCH RECYCLING THUS CONSTITUTED UNEXPLAINED CREDITS AND UNEXPLAINED DEBITS THUS ACCORDINGLY A NETTING OF THE TWO IS REQUIRED TO BE WORKED OUT FROM THE CASH FLOW STATEMENT. IN THE BACK-GROUND OF THE ABOVE OBSERVAT IONS IT CAN IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 22 - FINALLY BE SUMMARIZED THAT THE PROCEDURE TO BE FOLL OWED BY THE A.O. OUGHT TO BE TO FIRST WORK-OUT THE INTEREST INC OME GENERATED FROM THE FINANCE BUSINESS ON ONE HAND AND THE INT EREST PAID TO THE PARTIES AS PER SEIZED MATERIAL SO AS TO ARRIVE AT THE NET FIGURE OF INTEREST EARNED FROM THE FINANCE BUSINESS. THEREUPO N THE NET INVESTMENT IS TO BE WORKED OUT WHICH SHALL BE THE DIFFERENCE BETWEEN THE BORROWINGS FROM THE PARTIES AND THE LOA NS ADVANCED TO THE PARTIES. THE THIRD FIGURE IS THE INCREMENTAL PE AK AS COMPUTED ON THE BASIS OF THE CASH FLOW. THEN THE A.O. IS REQ UIRED TO DECIDE WHETHER THE NET UNDISCLOSED INVESTMENT IN THE FINAN CE BUSINESS IS TO BE TAXED OR THE NET UNDISCLOSED FINANCE BUSINESS INCOME IS TO BE ASSESSED. IN ANY CASE THE TELESCOPING AMONGST THESE TWO COMPUTATIONS ARE PERMISSIBLE IN SUCH TYPE OF WORKIN G. THESE SUGGESTIONS ARE NOT EXHAUSTIVE SO THE A.O. IS DIREC TED TO FINALIZE THE CORRECT FIGURE OF NET ADDITION AS PER LAW AND A S PER THE ACCOUNTING PRINCIPLES. WE HOLD ACCORDINGLY. 15.1 DURING THE COURSE OF HEARING WHEN THI S QUESTION OF WORKING OF THE INCREMENTAL PEAK CASH CREDIT WAS ARG UED LEARNED AR HAS DRAWN OUR ATTENTION ON THE ORDER GIVEN EFFEC T TO THE ORDERS OF LEARNED CIT(A) U/S. 250 OF IT ACT FOR A.Y. 2004- 05 2005-06 AND 2006-07. IT IS CONTESTED THAT THE AO HAS NOT CO RRECTLY APPRECIATED THE DIRECTIONS OF LEARNED CIT(A) AND TH ERE WAS A DEFAULT IN GIVING THE EFFECT TO THE ORDER OF LEARNE D CIT(A). NOW THE PRESENT POSITION IS THAT THE AFORESAID DIRECTIO NS OF LEARNED CIT(A) HAVE NOW BEEN CHALLENGED BY THE REVENUE DEPA RTMENT IN THE GROUNDS OF APPEAL AS REPRODUCED ABOVE. THEREFORE THE SAID DIRECTIONS ARE NOW REQUIRED TO BE MODIFIED IN THE LIGHT OF THE IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 23 - DIRECTIONS PRESENTLY GIVEN IN THIS JUDGMENT BY US. THE AFORESAID DIRECTIONS OF LEARNED CIT(A) THUS STOOD MERGED WITH THE FRESH FINDING GIVEN IN THIS JUDGMENT OF THE TRIBUNAL. WE THEREFORE DIRECT THE ASSESSEE TO CO-OPERATE WITH THE REVENUE DEPARTMENT IN PREPARATION OF A CASH FLOW STATEMENT ON THE BASIS O F THE SEIZED MATERIAL AND THEREUPON COMPUTE THE INCREMENTAL PEAK CREDIT IN RESPECT OF THE FINDINGS OF THE ASSESSEE. AS A RESUL T WE HEREBY RESOLVE THE CONTROVERSY. THE EFFECT OF THE ABOVE FI NDING IS THAT THE GROUNDS RAISED BY THE REVENUE STOOD ALLOWED BUT RES TORED BACK WITH DIRECTIONS TO ADOPT THE CORRECT WAY OF COMPUTA TION OF UNDISCLOSED INCOME NEEDLESS TO SAY AS PER LAW. 16. TO SUM UP THE ISSUE RAISED BY THE ASSESSEE TO ASSESS THE INCOME IN THE STATUS OF AOP IS HEREBY DISMISSED. HO WEVER THE INCOME OF THE FIRM IS REQUIRED TO BE ASSESSED AS PE R THE DIRECTION MADE HEREINABOVE RESULTANTLY THE APPEALS OF THE R EVENUE ARE ALLOWED FOR STATISTICAL PURPOSE. C. ASSESSEES APPEAL (ITA NO. A.Y. 586 587 588/AHD/2 012) (FOR A.Y. 2004-05 2005-06 AND 2006-07) 18. THESE THREE APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINST THE ORDERS OF LEARNED CIT(A)-IV BARODA DA TED 19.09.2012. THE ASSESSEE IS AGGRIEVED BY THE CONFIR MATION OF PENALTY LEVIED U/S. 271(1)(C) OF IT ACT. FOR A.Y. 2004-05 A PENALTY OF RS.54 39 500/- FOR A.Y. 2005-06 PENALTY OF RS.65 33 600/- AND FOR A.Y. 2006-07 PENALTY OF RS.1 0 88 527/- IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 24 - WAS IMPOSED U/S.271(1)(C) WHICH WAS AFFIRMED BY LEA RNED CIT(A) HENCE THE ASSESSEE IS IN APPEAL BEFORE US. FACTS BE ING IDENTICAL THEREFORE THESE APPEALS ARE CONSOLIDATED AND HEREB Y DECIDED BY THIS COMMON ORDER. 19. FACTS IN BRIEF AS EMERGED FROM THE CORRES PONDING PENALTY ORDER PASSED U/S.271(1)(C) DATED 18.03.2011 FOR TH E YEARS INVOLVED ARE THAT A SEARCH U/S.132 WAS CARRIED OUT ON THE ASSESSEE ON 19 TH OF JANUARY 2006. THE ASSESSEE WAS FOUND TO BE IN THE BUSINESS OF MONEY LENDING. FOR A.Y. 2004-05 THE AS SESSMENT WAS MADE U/S.143(3) R.W.S. 153A OF THE IT ACT AND THE T OTAL INCOME WAS DETERMINED AT RS.4 96 645/-. FOR A.Y. 2005-06 THE TOTAL INCOME WAS DETERMINED AT RS.4 11 01 180/- AND FOR A .Y. 2006-07 THE TOTAL INCOME WAS DETERMINED AT RS.1 29 06 408/- . FOR THESE YEARS THE ASSESSEE PREFERRED AN APPEAL AND LEARNED CIT(A) HAS RECORDED THE CONTENTION OF THE ASSESSEE IN RESPECT OF ASSESSMENT IN THE STATUS OF AOP HOWEVER A DIRECTION WAS GIVEN T HAT ALL THE TRANSACTIONS WERE REQUIRED TO BE CONSIDERED JOINTLY ON THE BASIS OF THE PEAK CREDIT REFLECTED IN THE CASH FLOW STATEMEN T TO BE PREPARED ON THE BASIS OF THE SEIZED DOCUMENTS. THE AO WAS DI RECTED TO VERIFY FROM THE SEIZED MATERIAL AVAILABLE WHETHER A LL THE ENTRIES ARE REFLECTED TO ARRIVE AT THE INCREMENTAL PEAK. SIDE B Y SIDE IT WAS ALSO TO FIND OUT THE UNACCOUNTED BUSINESS PROFIT EARNED TO BE TELESCOPED AGAINST THE UNACCOUNTED MONEY LENDING BUSINESS INVE STMENT OF THE ASSESSEE. THE AO HAD WORKED OUT THE ALLEGED UNEXPLA INED PEAK CREDIT AND THAT WAS MADE THE BASIS FOR LEVY OF IMPU GNED PENALTY. ACCORDING TO AO THE ASSESSEE HAD CONCEALED PARTICU LARS OF THE IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 25 - INCOME THEREFORE SUBJECTED TO LEVY OF PENALTY U/S . 271(1)(C) OF IT ACT. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST A PPELLATE AUTHORITY THE VIEW WAS TAKEN IN FAVOUR OF THE REVE NUE AS FOLLOWS: SUBSEQUENT TO PASSING OF ABOVE APPEAL ORDER OF CIT (A)-IV AHMEDABAD THE AO WHILE GIVING EFFECT TO SUCH APPEAL ORDER WORKED OUT THE UNEXPLAINED CASH CREDIT/UNSECURED LOANS OF RS.45 77 096/- AND THE UNEXPLAINED CAPITAL BALANCES IN THE NAME OF PARTNER OF THE ASSESSEE FIRM AT RS.1 05 85 211/- ON THE BASIS OF ENTRIES FOUND IN T HE SEIZED MATERIALS/DOCUMENTS AND BALANCE SHEET AS ON 31.03.2 004. IN THE APPEAL EFFECT ORDER AFTER ADDING THE ABOVE TWO AMOUNTS OF RS.45 77 096/- AND OF RS.1 05 85 211/- THE NET AMOUNT OF ADDITION WAS WO RKED OUT AT RS.1 51 62 307/- IN VIEW OF ABOVE DIRECTION OF THE LD. CIT(A). NOW IN VIEW OF GROUND OF APPEAL NO.2 OF THE APPELLANT THE QUESTIO N ARISES WHETHER THE ENTIRE BASIS OF ADDITION IS ALTERED AND IN THE IMPUGNED OR DER AND THE INCOME IS QUANTIFIED ON A BASIS WHICH IS ENTIRELY DIFFERENT T HAN THE ONE WHICH EXISTED IN THE ASSESSMENT MADE BY THE AO AND HENCE THE BASIS O N WHICH THE SATISFACTION FOR INITIATION OF PENALTY HAVING BEEN ALTERED IN IT S ENTIRETY THE PENALTY IS UNSUSTAINABLE AND UNWARRANTED. IN MY OPINION THE I SSUE RAISED BY THE APPELLANT AS PER THE GROUND OF APPEAL NO.2 IS NOT O NLY INCORRECT AND UNTENABLE BUT ALSO DEVOID OF ANY MERITS. THE UNDISP UTED FACT IS THAT THE ADDITION WAS MADE IN THE CASE OF APPELLANT FOR THE YEAR UNDER CONSIDERATION ON THE BASIS OF INCRIMINATING DOCUMENTS (I.E. AS PER ANNEXURE-A/17) AND THIS ADDITION WAS DULY CONFIRMED BY THE LD CIT(A) AND T HE LD. CIT(A) AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE HAS CLEARLY MENTIONED IN HIS APPEAL ORDER THAT NO INTERFERENCE IS CALLED FOR IN MAKING ADDITION ON THIS ACCOUNT. THUS THE LD. CIT(A) HAS DISMISSED THE APPE AL OF THE APPELLANT. HOWEVER THE LD. CIT(A) IN VIEW OF REQUEST OF THE A PPELLANT AND ALSO AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIEW OF DECISIONS OF VARIOUS HON'BLE COURTS HAS ONLY DIRECTED THE AO TO VERIFY THOSE SEIZED MATERIALS AVAILABLE IN HIS POSSESSION AND TO FIND O UT WHETHER ALL ADDITIONS ARE RECOVERED IN THE TELESCOPING OF INCOME EARNED O N THE BASIS OF UNACCOUNTED BUSINESS AND THE AMOUNT OF PROFIT EARNE D FROM UNACCOUNTED MONEY LENDING BUSINESS AS WELL AS WORKING OUT OF AD DITION ON THE BASIS OF INCREMENTAL PEAK CREDIT. AT THIS PLACE THE POINT TO BE NOTED IS THAT IN THE CASE OF APPELLANT ORDER U/S. 143(3) R.W.S 153A OF THE I T ACT HAVE BEEN PASSED FOR THE YEAR UNDER CONSIDERATION AS WELL AS FOR A.Y. 20 05-06 AND 2006-07. THE VERY FACT IS THAT IN ALL THESE THREE ASSESSMENT YEA RS THE. ADDITIONS HAVE BEEN MADE IN THE CASE OF APPELLANT ON THE BASIS OF INCRI MINATING DOCUMENTS IMPOUNDED /SEIZED DURING THE COURSE OF SURVEY AND S EARCH ACTION AND SUCH ADDITIONS HAVE DULY BEEN CONFIRMED BY THE CIT(A) BY DISMISSING THE APPEALS OF THE APPELLANT. THUS THE VERY BASIS OF ADDITION IS NOT ALTERED AT ALL. THE ONLY THING IS THAT THE ID. CIT(A) HAS DIRECTED THE AO TO CONSIDERED ALL THE TRANSACTIONS JOINTLY ON THE BASIS OF PEAK CREDIT AS REFLECTED IN THE CASH FLOW STATEMENT ON THE BASIS OF SEIZED DOCUMENTS. THUS T HE LD. CIT(A) HAS ASKED THE AO TO FOLLOW CERTAIN METHOD OF WORKING THE QUAN TUM ADDITIONS AND THAT IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 26 - TOO ONLY ON REQUEST OF APPELLANT WHICH WAS MADE BEF ORE HIM DURING THE COURSE OF APPELLATE PROCEEDINGS. THE ADDITIONS IN T HE CASE OF APPELLANT HAVE MAINLY BEEN MADE ON THE BASIS OF INCRIMINATING DOCU MENTS BUT THE LD. CIT(A) WANTED TO ENSURE THAT ALL THE ADDITIONS MADE IN THE CASE OF APPELLANT FOR THE ABOVE THREE ASSESSMENT YEARS ARE COVERED IN THE TEL ESCOPING OF INCOME EARNED ON THE BASIS OF AN UNACCOUNTED BUSINESS. THUS I FU LLY AGREE WITH THE VIEW OF THE AO THAT THE BASES OF ADDITIONS ARE NOT CHANGED BUT CERTAIN METHOD OF WORKING HAS BEEN ADOPTED FOR COMPUTING SUCH UNDISCL OSED INCOME. IN MY OPINION THE LD. CIT(A) HAS ADOPTED A VERY JUDICIOUS AN WELL ACCEPTED METHOD OF WORKING OF PEAK CREDIT AND WHILE FOLLOWING THE D IRECTION OF LD. CIT(A) THE AO HAS GIVEN EFFECT TO HIS APPEAL ORDER FOR ABOVE T HREE ASSESSMENT YEARS AND AS A RESULT OF WHICH THE UNDISCLOSED INCOME IN A PA RTICULAR ASSESSMENT YEAR HAS BEEN PARTLY REDUCED AND IN PARTICULAR ASSESSMEN T YEAR HAS BEEN PARTLY INCREASED. THE VERY SOURCE ON THE BASE OF ADDITIONS IN THE CAS E OF APPELLANT FOR THE YEAR UNDER CONSIDERATION IS ONLY SEIZED MAT ERIALS AS FOUND DURING THE COURSE OF SEARCH/SURVEY ACTION AND IN APPEAL EF FECT ORDER ONLY FIGURE/QUANTUM OF SUCH ADDITION DUE TO FOLLOWING TH E DIRECTION OF LD. CIT(A) OF TELESCOPING OF INCOME ON THE BASIS OF INC REMENTAL PEAK CREDIT HAS BEEN CHANGED. THUS THE BASIS OR NATURE OF ADDITION FOR ALL THESE THREE YEARS HAVE NOT BEEN ALTERED AS CONTENTED BY THE APPELLANT BUT ONLY RE-WORKING OF QUANTUM ADDITIONS HAS BEEN DONE. IN ALL THESE THREE ASSESSMENT YEARS THE UNDISCLOSED INCOME OF THE APPELLANT HAVE BEEN COMPU TED ON THE BASIS OF INCRIMINATING DOCUMENTS ONLY IRRESPECTIVE OF THE FA CT THAT FOR A PARTICULAR YEAR THE INCOME IS PARTLY REDUCED AND FOR A PARTICU LAR YEAR THE INCOME IS PARTLY INCREASED DUE TO FOLLOWING CERTAIN METHOD OF WORKING BUT THE VERY FACT REMAINS THAT THE UNACCOUNTED INCOME WAS COMPUT ED BY THE AO ON THE BASIS OF INCRIMINATING DOCUMENTS FOR ALL THESE THRE E YEARS AND SUCH ADDITIONS WILL CERTAINLY ATTRACT THE PROVISIONS OF SECTION 271(1)(C) OF THE IT ACT. 19.1 FROM THE SIDE OF THE ASSESSEE FEW CASE LAW C ITED ARE AS UNDER: 1. ITO VS/ GOLDPAR HOSIERY MILLS & KNITWEARS 77 IT D 340 (CHD.) 2. STANDARD SALT WORKS LTD. V/S. ITO (2001) 73 TT J (AHD) 71. 3. ACIT V/S. PARDEEP PUBLICATION (2010) 130 TTJ ( ASR)(UO) 92. 20. THE CURRENT POSITION IS THAT THE MAIN APPEALS O F THE REVENUE AS WELL AS THE APPEALS FILED BY THE ASSESSEE CHALLE NGING THE ADDITION MADE AS PER THE ASSESSMENT ORDER FOR THE R ESPECTIVE YEARS IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 27 - ARE NOW RESTORED BACK TO THE FILE OF THE AO TO RE-D ETERMINE THE QUANTUM OF THE ADDITION AS PER THE DIRECTION HEREIN ABOVE. SINCE THE QUANTUM OF APPEALS ARE RESTORED BACK FOR RE-ADJ UDICATION TO THE FILE OF THE AO THEREFORE THE VERY BASIS OF LEVY O F CONCEALMENT PENALTIES ARE SIMULTANEOUSLY TO BE DECIDED AFRESH A LONG WITH THE ASSESSMENT ORDER. 21. IN THE RESULT THESE APPEALS ARE ALLOWED FOR ST ATISTICAL PURPOSES ONLY. C. REVENUES APPEAL (ITA NO.2689 & 2690/AHD/2009) (A.Y.2005-06 & 2006-07) 22. THESE TWO APPEALS HAVE BEEN FILED BY THE REVENUE ARISING FROM THE ORDER OF LEARNED CIT(A)-IV AHMEDA BAD BOTH DATED 31 ST OF MARCH 2009. FROM THE SIDE OF THE RESPONDENT A LEGAL HEIR NAMELY SMT. MEENABEN MUKESH PATEL (WIFE) IS BROUGHT ON RECORD. FOR BOTH THE YEARS REVENUE HAS RAISED THE GROUNDS AS UNDER:- THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS AND C IRCUMSTANCES OF THE CASE IN DELETING ADDITION OF RS.16 46 300/- ON ACCOUNT OF S HORT TERM CAPITAL GAIN ON ACCOUNT OF SALE OF LAND. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER ON THE ABOVE POINTS. 23. FACTS IN BRIEF AS EMERGED FROM THE CORRESPO NDING ORDERS FOR A.Y. 2005-06 AND 2006-07 RESPECTIVELY PASSED U/S. 143(3) READ WITH SECTION 153A(B) BOTH DATED 14.08.2008 W ERE THAT CONSEQUENCE UPON A SEARCH U/S. 132 OF IT ACT CARRIE D OUT IN THE IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 28 - CASE OF M/S. JAYESH FINANCE THE ASSESSEE WAS SERVE D WITH THE NOTICE AND THE PROCEEDINGS WERE INITIATED U/S. 153A OF IT ACT. DURING THE COURSE OF SURVEY AT THE RESIDENTIAL PREM ISES OF SRI MUKESH J. PATEL CERTAIN DOCUMENTS (PURCHASE DEED) WERE FOUND PERTAINING TO NINE PLOTS AT ARIHANT PARK HOUSE JHA THODIYA. ON THE BASIS OF THOSE DOCUMENTS ACTION WAS TAKEN IN THE C ASE OF THE SAID FIRM AND A PROTECTIVE ASSESSMENT WAS MADE IN THE CA SE OF THE ASSESSEE AS FOLLOWS: A SEARCH PROCEEDINGS WAS CONDUCTED AT THE RESIDENT IAL PREMISES OF SHRI MUKESH J PATEL WHO IS 'BENAMI' OF THE ASSESS EE. THE ASSESSEE HAS ALSO VIDE PARA 29 PAGE 24 OF ITS SUBMISSION DATED 29/07 /2007 HAS ACCEPTED THAT SHRI MUKESH J PATEL IS ACTING AS BENAMI OF THE FIRM (AOP THE IMAGINARY ENTITY OF THE ASSESSEE). DURING THE COURSE OF SEARC H AT THE RESIDENTIAL PREMISES OF SHRI MUKESH J PATEL ANNEXURE A/2 WAS FOUND AN D IMPOUNDED PAGE 8 OF SAID ANNEXURE A/2 DEMONSTRATES THE DETAILS OF NINE PLOTS AT ARIHANT PARK HOUSE JHATHODIYA IN THE FORM OF PURCHASE DEED. TH IS TRANSACTION IS ALSO SUPPORTED BY ANNEXURE A/19 A LOOSE PAPER FILE CONT AINING 1 TO 85 PAGES IMPOUNDED FROM THE OFFICE PREMISES OF THE ASSESSEE DURING THE COURSE OF SURVEY. THE ASSESSEE WAS ASKED TO FURNISH THE DETAI LS OF THE SAME. IN RESPONSE THERETO THE ASSESSEE HAS STATED THAT THIS PURCHASE DEED DATED 02/06/2005 IS FROM JAYESH INDRAVADAN SHAH FOR RS.1 95 000/-. SHRI JAYESH I SHAH IS ONE WHO WHO WAS LENT LOAN RS.8 50 000/- BY THE ASSESSEE BY WAY OF ACCOUNT PAYEE CHEQUE. LATER SHRI JAYESH I. SHAH WAS ; NOT ABLE TO REPAY; THE LOAN OF RS.8 50 000/- THEREFORE THE SAID 9 PLOTS OF LAND WAS TRANSFERRED IN THE NAME OF SHRI MUKESH J PATEL BENAMI OF THE ASSESSEE FIRM . IN THE SAME CONTEXT DURING THE COURSE OF SURVEY AT THE OFFICE PREMISES OF THE ASSESSEE ANNEXURE A/19 & A/21 WERE IMPOUNDED. PAGE NO.5 TO 17 OF ANNE XURE A/19 ARE SALE DEED FOR A PLOT DATED 08/07/2004 BETWEEN SHRI MUKES H J. PATEL SELLER AND SHRI NAVINCHANDRA AMBALAL PATEL BUYER FOR A CONSID ERATION OF RS.1 59 700/- IN THIS CONTEXT IT IS PERTINENT TO MENTION HERE TH AT SHRI NIKUL C. PATEL PAO HOLDER HAS TRANSFERRED PLOT NOS.15 19 31 35 38 92 42 43 & 44 OF LAND BEARING R.S. NO.188/1/2B/3/4 IN THE NAME OF SHRI MU KESH J PATEJ BENAMI OF THE ASSESSEE THE ASSESSEE WAS ASKED TO EXPLAIN THE SE TRANSACTIONS. IN RESPONSE THERETO THE ASSESSEE REPEATS THE STORY OF AOP. THEREFORE IT IS HELD THAT THE ASSESSEE FAILED TO SUBMIT VALID REPLY. FOR WANT OF VALID REPLY I HAVE NO ANY OTHER ALTERNATIVE BUT TO ADD RS.14 37 300/- (RS.1 59 700X 9 PLOTS). SIMILARLY OUT OF THESE NINE PLOT A PLOT NO.19 WAS SOLD AT THE CONSIDERATION OF RS.3 70 000/- ON 10/11/2004 BY THE ASSESSEE. SINCE AN AMOUNT OF RS.1 59 700/- HAS ALREADY BEEN COVERED IN RS.14 37 300 THE DIFFERENCE I.E. RS.2 09 300/- (RS.3 70 000 MINUS RS.1 59 700) HAS B EEN ADDED TO THE TOTAL INCOME OF THE ASSESSEE AS SHORT TERM CAPITAL GAIN O N ACCOUNT OF SALE OF LAND. IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 29 - SINCE THE ASSESSEE IS BENAMI OF M/S. JAYESH FINANC E ADDITION TO THE EXTENT OF RS.16 46 600/- IS MADE ON PROTECTIVE BASIS IN THE H ANDS OF THE ASSESSEE. PENAL PROCEEDINGS U/S. 271(1)(C) OF THE ACT ARE INITIATED . 24. WHEN THE MATTER WAS CARRIED BEFORE LEARNE D CIT(A) IT WAS HELD THAT THE AO IS TO VERIFY FROM THE CASH FLO W STATEMENT THAT THE AMOUNT OF PROFIT EARNED FROM THE SALE TRANSACTI ON OF THOSE PLOTS IS COVERED IN THE INCREMENTAL PEAL AND THE ASSESSME NT IS TO BE MADE IN THE HANDS OF THE FIRM ON SUBSTANTIVE BASIS . THE DIRECTIONS OF THE LEARNED CIT(A) WAS AS UNDER: I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF LEAR NED COUNSEL AS WELL AS GONE THROUGH THE RECORDS. I WAS HELD IN CASE OF M/S. JAYESH FINANCE THAT STATUS OF ASSOCIATION OF PERSONS (AOP) WAS NOT IN E XISTENCE SINCE M/S. JAYESH FINANCE ITSELF HAD CLAIMED STATUS AS FIRM WHILE FIL ING ITS RETURN OF INCOME. THE ASSESSING OFFICER HAS TO MAKE ASSESSMENT ON THE BASIS OF DECLARED STATUS IN THE RETURN OF INCOME FOR THE PURPOSE OF ASSESSME NT. FURTHER IT MAY BE MENTIONED HERE THAT THE ASSESSING OFFICER IN THE P RESENT CASE HAS A SPECIFIC AND ASSIGNED JURISDICTION U/S 127(2) OF INCOME-TAX ACT 1961 VIDE ORDER NO.BRD/CIT-II/JURIS/2006-07 DATED 30.06.2006 ISSUE D BY THE CIT-II BARODA AFTER CONDUCT OF SEARCH U/S 132 ON THE BASI S OF WHICH CASE WAS TRANSFERRED TO HIM OF PARTNERSHIP FIRM M/S. JAYESH FINANCE ONLY W.E.F. 01.07.2006 (AND NOT OF ASSOCIATION OF PERSONS AS NO W CLAIMED BY THE APPELLANT SINCE THE RESIDUARY JURISDICTION LIES WIT H TERRITORIAL ASSESSING OFFICER). IT WAS HELD BY HONBLE BOMBAY HIGH COURT IN CASE OF CIT V/S. ASSOCIATED CEMENT AND STEEL AGENCIES (147 ITR 776) THAT WHERE A RETURN WAS SUBMITTED IN THE STATUS OF A FIRM THE ASSESSMENT I N THE STATUS OF AN ASSOCIATION OF PERSONS (AOP) WAS NOT PERMISSIBLE. S IMILAR VIEW WAS ALSO HELD BY HONBLE RAJASTHAN HIGH COURT IN CASE OF CWT V/S. JAGDISH PURI (163 ITR 458). THE ASSESSING OFFICER HAD ALREADY MADE TH IS ADDITION IN CASE OF THE PARTNERSHIP FIRM M/S. JAYESH FINANCE THEREFORE AD DITION OF RS.16 46 300/- AS BENAMI OF M/S. JAYESH FINANCE ON PROTECTIVE BASI S IN RESPECT OF SALE OF PLOTS TO VARIOUS PERSONS AS THESE WERE TRANSACTED B Y THE APPELLANT ON BEHALF OF THE PARTNERSHIP FIRM. THEREFORE THE INCOME ITSE LF HAS TO BE TAXED IN THE CASE OF THE PARTNERSHIP FIRM. THIS AMOUNT WAS RECEI VED AND RECORDED IN THE CASH BOOK/CASH FLOW. SINCE THE INCOME HAS BEEN INCL UDED IN THE CASH BOOK THE SAME B CONSIDERED AS COVERED AND TELESCOPED IN SUCH INCOME VIDE SUBMISSION DATED 29.07.2008 SUBMITTED BEFORE ASSESS ING OFFICER DURING ASSESSMENT PROCEEDINGS. THE BUSINESS OF MONEY LENDI NG WAS NOT RECORDED IN THE BOOKS OF ACCOUNTS AND THEREFORE THE ENTIRE BU SINESS FROM SUCH ACTIVITY WAS INCOME FROM UNACCOUNTED BUSINESS. KEEPING IN VI EW OF ABOVE FACTS AND CIRCUMSTANCES OF THE CASE WHERE THE INCOME ITSELF HAS TO BE TAXED IN THE CASE OF THE PARTNERSHIP FIRM THEN IT COULD NOT BE TAXED IN THE CASE OF THE APPELLANT. THEREFORE ASSESSING OFFICER IS DIRECTED TO VERIFY FROM SEIZED MATERIAL AVAILABLE IN THIS POSSESSION WHETHER THIS INCOME IS COVERED IN THE CASH FLOW STATEMENT THE AMOUNT OF PROFIT EARNED FRO M UNACCOUNTED SALE IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 30 - TRANSACTIONS OF PLOTS TO VARIOUS PERSONS ON THE BAS IS OF INCREMENTAL PEAK CREDIT IN CASE OF THE PARTNERSHIP FIRM WHERE IT WAS ADDED ON SUBSTANTIVE BASIS. FURTHER THE ADDITION ON PROTECTIVE BASIS IN CASE OF THE APP ELLANT IS HEREBY DELETED WITH THE DIRECTIONS TO THE ASSESSING OFFICER TO CON SIDER THIS AMOUNT OF ADDITION IN CASE OF THE PARTNERSHIP FIRM ON SUBSTANTIVE BASIS OF CASH FLOW STATEMENT AND INCREMENTAL PEAK CREDIT IN CASE OF THE FIRM. HENCE THE SINGLE GROUND OF APPEAL IS ALLOWED. 25. AFTER HEARING BOTH THE SIDES WE ARE OF THE VIEW THAT THERE WAS NO FALLACY IN THE DIRECTIONS OF LEARNED CIT(A). THE CASE OF M/S. JAYESH FINANCE HAS ALREADY BEEN DISCUSSED IN D ETAILS IN ABOVE PARAGRAPHS. IN THOSE PARAGRAPHS WE HAVE DIRECTED T HE AO TO COMPUTE THE UNACCOUNTED INCOME FROM FINANCE BUSINES S ON ONE HAND AND ON THE OTHER HAND THE AO IS DIRECTED TO D ETERMINE THE INCREMENTAL PEAK CREDIT ON THE BASIS OF THE CASH FL OW STATEMENT AND THEN THE UNEXPLAINED INVESTMENT IN THE FINANCE BUSI NESS SHOULD BE SET OFF AGAINST THE UNACCOUNTED INCOME IF FOUND INV ESTED IN THE FINANCE BUSINESS. ONLY THE BALANCE ON NETTING IS REQUIRED TO BE ASSESSED ON SUBSTANTIVE BASIS IN THE HANDS OF THE F IRM. SINCE WE HAVE ALREADY GIVEN THESE DIRECTIONS; THEREFORE ON THE SAME LINES THESE TWO APPEALS ARE HEREBY DECIDED. HENCE THE GR OUNDS TAKEN BY THE REVENUE HAS NO LEGAL FORCE THEREFORE DISMISSED. 26. IN THE RESULT THESE TWO APPEALS OF THE REVENUE ARE HEREBY DISMISSED. OVERALL RESULT IS AS UNDER:- (A). ITA NO. 2691 & 2692(REVENUES APPEAL) ALLOWED FOR STATISTICAL PURPOSE. (B). ITA NO.236 237 & 238 (ASSESSEES APPEAL) DISM ISSED. (C) ITA NO. 586 587 & 588 (ASSESSEES APPEAL) ALL OWED FOR STATISTICAL PURPOSE. (D) ITA NO. 2689 2690 (REVENUES APPEAL) DISMISSE D. SD/- SD/- (T.R. MEENA) (MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL M EMBER AHMEDABAD; DATED 31/10/201 PRABHAT KR. KESARWANI SR. P.S. IT(SS)A NO.236 237 & 238/AHD/2011 ITA NO.2691 & 2692/AHD/2009 IT(SS)A NO.586 587 & 588/AHD/2012 ITA NO.2689 & 2690/AHD/2009 M/S. JAYESH FINANCE & LATE MUKESH J. PATEL (L/H MEE NABEN J. PATEL). FOR A.YS. 2004-05 2005-06 & 2006-07 - 31 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-III AHMEDABAD 5. / DR ITAT AHMEDABAD 6. / GUARD FILE. / BY ORDER / ( DY./ASSTT.REGISTRAR) / ITAT AHMEDABAD