ACIT, Hyderabad v. M/s Sri Enterprises, Hyderabad

ITSSA 79/HYD/2004 | misc
Pronouncement Date: 31-03-2011 | Result: Dismissed

Appeal Details

RSA Number 7922516 RSA 2004
Assessee PAN AABFL4250C
Bench Hyderabad
Appeal Number ITSSA 79/HYD/2004
Duration Of Justice 6 year(s) 9 month(s) 12 day(s)
Appellant ACIT, Hyderabad
Respondent M/s Sri Enterprises, Hyderabad
Appeal Type Income Tax (Search & Seizure) Appeal
Pronouncement Date 31-03-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 31-03-2011
Date Of Final Hearing 01-02-2011
Next Hearing Date 01-02-2011
Assessment Year misc
Appeal Filed On 18-06-2004
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B HYDERABAD BEFORE SHRI N.R.S. GANESAN JUDICIAL MEMBER AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER IT(SS)A NO.67/H/2004 BLOCK PERIOD 1991-92 TO 2000-01 & FROM 1.4.2000 TO 8.9.2000 M/S LALSHMISRI ENTERPRISES HYDERABAD (PAN AABFL 4250 C) VS THE ACIT CENTRAL CIRCLE 5 HYDERABAD (APPELLANT) (RESPONDENT) IT(SS)A NO.76/H/2004 BLOCK PERIOD 1991-92 TO 2000-01 & FROM 1.4.2000 TO 8.9.2000 THE ACIT CENTRAL CIRCLE 5 HYDERABAD VS M/S LALSHMISRI ENTERPRISES HYDERABAD (PAN AABFL 4250 C) (APPELLANT) (RESPONDENT) IT(SS)A NO.68/H/2004 BLOCK PERIOD 1991-92 TO 2000-01 & FROM 1.4.2000 TO 8.9.2000 M/S AMMA ENTERPRISES HYDERABAD VS THE ACIT CENTRAL CIRCLE 5 HYDERABAD (APPELLANT) (RESPONDENT) IT(SS)A NO.78/H/2004 BLOCK PERIOD 1991-92 TO 2000-01 & FROM 1.4.2000 TO 8.9.2000 THE ACIT CENTRAL CIRCLE 5 HYDERABAD VS M/S AMMA ENTERPRISES HYDERABAD (APPELLANT) (RESPONDENT) IT(SS)A NO.69/H/2004 BLOCK PERIOD 1991-92 TO 2000-01 & FROM 1.4.2000 TO 8.9.2000 M/S SREE ENTERPRISES HYDERABAD VS THE ACIT CENTRAL CIRCLE 5 HYDERABAD (APPELLANT) (RESPONDENT) IT(SS)A NO.79/H/2004 BLOCK PERIOD 1991-92 TO 2000-01 AND UPTO 8.9.2000 THE ACIT CENTRAL CIRCLE 5 VS M/S SREE ENTERPRISES IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 2 2 HYDERABAD HYDE RABAD (APPELLANT) (RESPONDENT) IT(SS)A NO.77/H/2004 BLOCK PERIOD 1991-92 TO 2000-01 AND UPTO 8.9.2000 THE ACIT CENTRAL CIRCLE 5 HYDERABAD VS DR. RAJENDRA RAO HYDERABAD (APPELLANT) (RESPONDENT) IT(SS)A NO.70/H/2004 BLOCK PERIOD 1991-92 TO 2000-01 AND UPTO 8.9.2000 SHRI JESWANT RAO HYDERABAD (PAN AEMPG 3905 L) VS THE ACIT CENTRAL CIRCLE 5 HYDERABAD (APPELLANT) (RESPONDENT) IT(SS)A NO.135/H/2004 BLOCK PERIOD BLOCK PERIOD 1991-92 TO 2000-01 & FROM 1.4.2000 TO 8.9.2000 THE ACIT CENTRAL CIRCLE 5 HYDERABAD VS SHRI K. MADHAVA REDDY HYDERABAD PAN AATPK 8176 E (APPELLANT) (RESPONDENT) IT(SS)A NO.131/H/2004 BLOCK PERIOD BLOCK PERIOD 1991-92 TO 2000-01 & FROM 1.4.2000 TO 8.9.2000 SHRI K. MADHAVA REDDY HYDERABAD PAN AATPK 8176 E THE ACIT CENTRAL CIRCLE 5 HYDERABAD (APPELLANT) (RESPONDENT) IT(SS)A NO.128/H/2004 BLOCK PERIOD BLOCK PERIOD 1991-92 TO 2000-01 & FROM 1.4.2000 TO 8.9.2000 SHRI BHIM RAO HYDERABAD PAN AFTPM 6636 E THE ACIT CENTRAL CIRCLE 5 HYDERABAD (APPELLANT) ( RESPONDENT) IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 3 3 IT(SS)A NO.130/H/2004 BLOCK PERIOD BLOCK PERIOD 1991-92 TO 2000-01 & FROM 1.4.2000 TO 8.9.2000 SHRI K. SANJEEVA REDDY HYDERABAD PAN AATPK 8154 C THE ACIT CENTRAL CIRCLE 5 HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : DR. M.V.R. PRASAD RESPONDENT BY : SHRI M.S. CHANDRA SEKARAN O R D E R PER BENCH: THESE ARE CROSS APPEALS PREFERRED BY THE ASSES SEE AS WELL AS THE DEPARTMENT ARE DIRECTED AGAINST DIFFERENT ORDER S PASSED BY THE CIT(A) I AND PERTAINS TO BLOCK PERIOD FROM 1991-92 TO 200 0-01 & FROM 1.4.2000 TO 8.9.2000. SINCE CERTAIN ISSUES INVOLVED IN THE SE APPEALS ARE COMMON IN NATURE THEY ARE CLUBBED TOGETHER HEARD TOGETHE R AND DISPOSED OFF VIDE THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST OF ALL WE TAKE UP THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEES IN APPEALS BEARING NOS. IT(SS)A-67 68 6 9 70 AND 128/H/2004. 3. IN IT(SS)A.NO.67 68 70 & 128/H/2004 THE ASSESSEE HAS TAKEN A COMMON ADDITIONAL GROUND THAT THE ASSESSME NT ORDER PASSED U/S 158BC OF THE INCOME TAX ACT IS BAD IN LAW IN AS MUC H AS THERE IS NO SEARCH WARRANT ON THE RESPECTIVE ASSESSEE. 4. WE HAVE HEARD BOTH THE PARTIES ON THE ISSUE RE LATING TO ADMISSION OF ADDITIONAL GROUND. THE ADDITIONAL GROU ND RAISED BY THE IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 4 4 ASSESSEES IN THESE APPEALS ARE RELATING TO LEGAL IS SUE AND THE REASONS ADVANCED BY THE ASSESSEES FOR NOT RAISING THIS GROU ND BEFORE THE LOWER AUTHORITIES IS BONA FIDE AS THE ASSESSEES HEREIN WE RE NOT IN THE POSSESSION OF COPIES OF SEARCH WARRANT ISSUED U/S 132 OF THE IT ACT AND UNTIL THEY GOT THE COPIES OF THE SEARCH WARRANTS THEY DO NOT KNOW IN WHOSE NAME THE SEARCH WARRANTS WERE ACTUALLY ISSUED AND IN VIEW OF THIS THEY WERE PREVENTED FROM SUFFICIENT CAUSE IN NOT RAISING THI S GROUND BEFORE THE LOWER AUTHORITIES. ACCORDINGLY WE ADMIT THE ADDITIONAL GROUND FOR ADJUDICATION BY PLACING RELIANCE ON THE JUDGEMENTS OF SUPREME CO URT IN THE CASE NATIONAL THERMAL POWER CO. VS. CIT (229 ITR 383) (S C) CIT VS. MAHALAXMI MILLS (66 ITR 187 ) (SC) JUTE CORPORATION OF INDI A VS. CIT (187 ITR 688) (SC) AND JUDGEMENT IN THE CASE OF CIT VS. DHANALAX MI MILLS (238 ITR 766) (MADRAS). 5. ON THE MERIT OF ABOVE ADDITIONAL GROUND THE L EARNED AR SUBMITTED THAT IN THE CASE OF M/S SRI LAXMI SREE EN TERPRISES (IT(SS)A.NO.67/H/2004) IT WAS MENTIONED IN THE PA NCHANAMA THAT THE WARRANT IS IN THE CASE OF SRI. K. MADHAVA REDDY AN D SRI K. SANJEEVA REDDY. THERE IS NO REFERENCE OF THE ASSESSEE AGAIN ST THE COLUMN RELATING TO THE PERSON IN WHOSE NAME THE WARRANT WAS ISSUED EVEN THOUGH THE PREMISE IS TO BE SEARCHED IS THAT OF THE ASSESSEE F IRM. HE RELIED ON ORDER OF THE SPECIAL BENCH IN THE CASE OF G. RAMAIAH REDDY V S AC (87 ITD 439) (BLORE) WHEREIN IT WAS HELD THAT THE TRIBUNAL HAS THE POWER AS WELL AS THE DUTY TO DECIDE WHETHER THE ORDER U/S 158 BC IS LEGA LLY VALID OR NOT. ACCORDING TO LEARNED AR THE SEARCH WARRANT ISSUED U /S 132 IS PERSON SPECIFIC AND NOT PREMISES SPECIFIC. FOR THIS PURPO SE HE RELIED ON THE ORDER OF BOMBAY BENCH OF ITAT IN THE CASE OF SMT. NASREE N YUSUF DHANANI VS. ACIT (24 SOT 31). IF THERE IS NO WARRANT IN A PART ICULAR CASE THE SEARCH IS INVALID AND CONSEQUENTLY THE ASSESSMENT U/S 158 BC IS ALSO INVALID. IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 5 5 6. THE LEARNED AR FURTHER SUBMITTED THAT EVEN ASS UMING THAT REFERENCE TO LAXMISAI ENTERPRISES IS ONLY A TYPOGRA PHICAL ERROR THE WARRANT IS A COMMON WARRANT AND IN THE CASE OF A CO MMON WARRANT THE ASSESSMENT CANNOT BE MADE ON A SINGLE PARTY IN THE LIGHT OF THE JUDGEMENT OF CIT VS. SMT. VANDANA VARMA (330 ITR 533) (ALLAHA BAD). IT HAS BEEN HELD THAT IN THE CASE THAT A WARRANT HAS TO BE ISSU ED INDIVIDUALLY AND NOT IN JOINT NAMES. FURTHER THE PANCHANAMA DOES NOT S PEAK AT ALL OF THE WARRANT BEING IN THE NAME OF THE ASSESSEE FIRM. IN TERMS OF THE RULE 112(7) OF THE IT RULES THE SEARCH IS TO BE MADE IN THE PRESENCE OF TWO WITNESSES AND WHEN PANCHANAMA DOES NOT SPEAK OF THE ASSESSEE FIRM AS THE PERSON IN RESPECT OF WHOM THE WARRANT HAS BEEN ISSUED IT HAS TO BE HELD THAT THERE IS NO SEARCH AND AS SUCH THE ASSESS MENT U/S 158BC IS INVALID. IF THERE IS ANY MATERIAL INCRIMINATING TH E ASSESSEE FOUND IN THE COURSE OF SEARCH ON K.SANJEEVA REDDY AND K. MADHAVA REDDY THE MATERIALS COULD HAVE BEEN USED FOR FRAMING AN ASSES SMENT U/S 158 BD. THE ORDER U/S 158 BC IS ILLEGAL AND INVALID. 7. IN THE ASSESSEE APPEAL IN THE CASE M/S AMMA EN TERPRISES (IT(SS)A NO.68/H/04) IT IS SUBMITTED BY THE LEA RNED AR THAT THERE IS NO SEARCH WARRANT IN THE NAME OF THE ASSESSEE FIRM AND SO THE ASSESSMENT U/S 158BC IS INVALID. ACCORDING TO LEARNED AR THE WARRANT COPY PRODUCED BY THE DEPARTMENTAL REPRESENTATIVE DURING THE COURS E OF HEARING HAS NO RELEVANCE AS IT SHOWS THAT THE WARRANT IS GIVEN IN THE NAME OF FOUR PARTIES DIVIDED INTO TWO CATEGORIES VIZ. 1. K. MADHAVA RED DY & K.SANJEEVA REDDY (2) M/S AMMA FINANCE AND M/S SREE FINANCE. REFERE NCE TO M/S SREE FINANCE SEEMS TO BE A MISNOMER FOR M/S SREE ENTER PRISES WHICH IS AN ASSESSEE OF THIS GROUP. HE RELIED ON THE JUDGEMENT IN THE CASE OF CIT VS. SMT. VANDANA VARMA REPORTED IN 330 ITR 533(ALLAHABA D). FURTHER THERE IS NO PANCHANAMA IN THE NAME OF THE ASSESSEE FIRM. THE PANCHANAMA IS IN THE NAME OF K. MADHAVA REDDY AND K.SANJEEVA REDD Y OF THE ASSESSEES IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 6 6 PAPER BOOK. IN THE ABSENCE OF A SEARCH ATTESTED BY WITNESSES AS REQUIRED UNDER RULE 112(7) OF IT RULES THERE IS NO SEARCH O R AT LEAST A VALID SEARCH ON THE ASSESSEE FIRM. IN THE CIRCUMSTANCES THE ASSESSMENT U/S 158BC ON THE ASSESSEE FIRM IS INVALID. AT THE MOST AN ASSESSMENT U/S 158BD COULD HAVE BEEN MADE. 8. THE LEARNED AR SUBMITTED IN THE CASE OF SREE ENTERPRISES ( IT(SS)A NO.69/H/04) THAT AN ASSESSMENT U/S 158BD IS ONLY AN OFF SHOOT OF A SEARCH ON ANOTHER PARTY AND WHEN THERE IS NO V ALID SEARCH ON THE SAID PARTY THE ASSESSMENT U/S 158BD IS ALSO INVALID. IT IS MENTIONED IN THE BODY OF ASSESSMENT ORDER THAT A SEARCH WAS CONDUCTE D AT THE RESIDENTIAL PREMISES OF SRI M. HANUMANTHA RAO PARTNER OF THE A SSESSEE FIRM. ON THE BASIS OF THE MATERIAL SEIZED IN THE SAID SEARCH IN ANNEXURE BEARING NO.MHR /PO/A/5 & MHR/PO/A/6 ADDITIONS OF RS.2 77 2 18/- AND RS.68 826/- WERE MADE. ON THE BASIS OF THE MATERIA L SEIZED DURING THE SEARCH ON M/S LAXMISAI ENTERPRISES I.E. ANNEXURE BE ARING NO.A/LSE/28 ADDITIONS OF RS.6 43 730/- AND RS.1 02 195/- WERE M ADE. IT HAS BEEN ARGUED THAT IN THE CASE OF M/S LAXMISAI ENTERPRISES THAT THERE IS NO VALID SEARCH IN THAT CASE. AS SUCH THE ASSESSMENT U/S 1 58BD MADE ON THE BASIS OF AN INVALID SEARCH IS ALSO INVALID. SO TH E ADDITIONS OF RS.6 43 730/- AND RS.1 02 195/- MADE IN THIS CASE A RE INVALID. 9. FURTHER HE SUBMITTED THAT M/S SREE ENTERPRISE S FIGURES ALONG WITH M/S AMMA ENTERPRISES AND SHRI K. MADHAVA REDDY AND SHRI K.SANJEEVA REDDY IN THE COMMON WARRANT GIVEN IN THE SE CASES. IF THERE WAS A WARRANT IN THESE CASES AS CLAIMED BY THE DEPA RTMENT AN ASSESSMENT U/S 158BC OUGHT TO HAVE BEEN MADE IN THE CASE OF THE ASSESSEE FIRM AND NOT AN ASSESSMENT U/S 158BD OF TH E ACT. IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 7 7 10. THE LEARNED AR SUBMITTED IN THE CASE OF SHRI JASWANT RAO (IT(SS)A NO.70/H/04) THAT AS THERE IS NO SEARCH WARRANT ISSUED IN THIS CASE THE SO CALLED SEARCH WAS ILLEGAL AND CONSEQUE NTLY THE ASSESSMENT FRAMED U/S 158BC IS INVALID. HE SUBMITTED THAT SI NCE THE DEPARTMENT COULD NOT PRODUCE ANY SEARCH WARRANT IN THIS CASE IT HAS TO BE HELD THAT THERE IS NO SEARCH ON THE ASSESSEE OR THE SEARCH IS INVALID. CONSEQUENTLY THE ASSESSMENT U/S 158BC IS TO BE QUASHED. 11. IN THE CASE OF MR. BHIM RAO (IT(SS)A.NO.128/H /2004) THE LEARNED AR SUBMITTED THAT THE ASSESSMENT U/S 158BC IS INVALID AS THERE IS NO SEARCH WARRANT. EVEN THE PANCHANAMA WHICH IS AT PAGE 1 OF THE PAPER BOOK WHEREIN MENTIONED THAT THE WARRANT WAS ISSUED IN THE NAME OF SHRI K. MADHAVA REDDY AND SHRI K.SANJEEVA REDDY AND NOT IN THE NAME OF THE ASSESSEE. THE DEPARTMENT DID NOT PRODUCE ANY WARRA NT IN THE NAME OF THE ASSESSEE DURING THE COURSE OF HEARING. SO THE ASSE SSMENT U/S 158BC IS INVALID AND REQUIRES TO BE QUASHED. THE LEARNED AR SUBMITTED THAT A SEARCH IS A SERIOUS INVASION OF THE PRIVACY OF AN A SSESSEE AND IT HAS TO BE STRICTLY IN ACCORDANCE WITH THE RULES. A FAILURE T O HAVE THE SEARCH ATTESTED BY WITNESSES AS REQUIRED U/S RULE 112 OF THE IT RUL ES IS A GROSS VIOLATION AND NOT A SIMPLE OMISSION. AS THERE IS NO PANCHANA MA IN RESPECT OF THE SEARCH ON THE ASSESSEE FIRM THE SEARCH IS INVALID AND AS SUCH THE ASSESSMENT U/S 158BC IS ALSO INVALID. 12. THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE PROVISIONS OF SECTION 292B TO PLEAD THAT A SIMPLE OMISSION DOES N OT INVALIDATE THE ASSESSMENT AND ACCORDING TO HIM MENTIONING OF WRON G SECTION IN THE ASSESSMENT ORDER AS 158BC INSTEAD OF SEC.158BD DOES NOT INVALIDATE THE ASSESSMENT ORDER. FURTHER HE SUBMITTED THAT THE ADDITIONAL GROUND QUESTIONING THE SEARCH WARRANT HAS BEEN RAISED BY T HE ASSESSEE FIRST TIME BEFORE THE TRIBUNAL AND NEITHER THE CIT(A) NOR THE ASSESSING OFFICER HAVE IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 8 8 AN OCCASION TO GO THROUGH THIS ISSUE. AS SUCH THE ISSUE MAY BE SET ASIDE TO THE FILE OF LOWER AUTHORITIES FOR FRESH CONSIDER ATION. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIALS AVAILABLE ON RECORD. WE HAVE CAREFULLY GONE THROU GH THE SEARCH WARRANT (FORM NO.45) DATED 6.9.2000 ISSUED U/S 132 READ W ITH RULE 112 OF THE IT RULES 1962. IN THE CASE OF M/S LAXMI SREE ENTERPR ISES THE SEARCH WAS TAKEN PLACE CONSEQUENT TO SEARCH WARRANT DATED 6.9. 2000 ISSUED IN THE NAME OF SHRI K. MADHAVA REDDY AND SHRI M.K. SANJEEV A REDDY AND THE PLACE TO BE SEARCHED IS M/S LAXMI SAI ENTERPRISES. WE HAVE ALSO GONE THROUGH THE PANCHANAMA DATED 8.9.2000 DRAWN IN THIS CASE. IN THE PANCHANAMA THE COLUMN REGARDING WARRANT IN THE CAS E OF WAS FILLED AS FOLLOWS: A) WARRANT IN THE CASE OF : LAXMI SREE ENTERPRISES S/SH.K. MAHADAVA REDDY & SANJEEVA REDDY B) WARRANT TO SEARCH (DETAILS OF : LAXMI SREE ENT ERPRISES OWNERSHIP OF PLACE OF KUKATPALLY HYD. SEARCH) 14. AS SEEN FROM THE COPY OF SEARCH WARRANT THER E IS NO VALID WARRANT IN THE CASE OF M/S LAXMI SREE ENTERPRISES. NOW THE QUESTION BEFORE US IS WHETHER THE TRIBUNAL HAS THE POWER TO EXAMINE THE VALIDITY OF THE SEARCH WARRANT ISSUED IN THIS CASE OR NOT. IN OUR OPINION NO APPEAL IS PROVIDED FOR AGAINST AN ORDER EITHER U/S 132(1) OR U/S 132(3) AND THE ASSESSEE CANNOT CHALLENGE SUCH ADMINISTRATIVE ACTIO N OF THE REVENUE DEPARTMENT. HOWEVER THE TRIBUNAL HAS THE POWER AS WELL AS THE DUTY TO DECIDE WHETHER THE ASSESSMENT ORDER IS PASSED IS LE GALLY VALID OR NOT. FOR THIS PURPOSE THE TRIBUNAL HAS THE POWER TO SEE WHE THER THERE WAS ANY IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 9 9 SEARCH WARRANT IN THE NAME OF THE ASSESSEE OR NOT. IT IS THE PREREQUISITE U/S 158BC THAT A PERSON IN THE CASE OF WHOM ACTION U/S 132 OR U/S 132A HAS BEEN TAKEN CAN BE CALLED UPON TO FILE A RETURN OF INCOME IN RESPECT OF BLOCK PERIOD AND AGAINST SUCH PERSON ONLY ORDER U/S 158BC CAN BE PASSED. THE TRIBUNAL HAS THE POWER TO EXAMINE WHET HER THERE IS AN ACTION U/S 132 OF THE IT ACT AGAINST THE ASSESSEE AND WHET HER THERE WAS VALID PANCHANAMA DRAWN IN THIS CASE OR NOT. THE ASSESSIN G OFFICER BEFORE ISSUING THE NOTICE U/S 158BC SHOULD SEE THAT THERE IS A SEARCH ACTION CONDUCTED ON THE ASSESSEE U/S 132 OF THE ACT. IN VIEW OF THIS WE REQUIRED TO VERIFY WHETHER THE JURISDICTIONAL FACTS EXISTS B EFORE ISSUE OF NOTICE U/S 158BC OF THE ACT AND THEREAFTER WE HAVE TO SEE WHET HER AN ASSESSMENT PASSED U/S 158BC IS IN RESPECT OF AN ASSESSEE AGAIN ST WHOM SEARCH WAS CONDUCTED U/S 132 OF THE ACT. THE SEARCH ACTION U/ S 132 SHOULD BE A VALID ACTION AND IT SHALL BE CULMINATED INTO VALID ORDER U/S 158BC OF THE ACT. AT THIS POINT WE MAKE IT CLEAR THAT WE ARE NO T ADJUDICATING THE PROPRIETY OF ACTION TAKEN U/S 132 OF THE ACT AND WE ARE ADJUDICATING ONLY AN ORDER PASSED U/S 158BC BASED ON ACTION U/S 132 OF THE IT ACT. TO BE A VALID SEARCH ACTION THERE SHOULD BE A WARRANT U/ S 132 OF THE IT ACT AND THE SAID WARRANT SHALL IN THE NAME OF THE ASSESSEE ONLY. WE HAVE CAREFULLY GONE THROUGH THE SEARCH WARRANT. WE ARE UNABLE TO F IND OUT THE NAME OF THE ASSESSEE M/S LAXMISAI ENTERPRISES IN THE SEARCH WARRANT DATED 6.9.2000 ISSUED U/S 132 OF THE IT ACT. THE SEARCH WARRANT WAS ISSUED IN THE NAMES OF S/SHRI K. MADHAVA REDDY & K. SANJEEVA REDDY AND THE PLACE TO BE SEARCHED IS BELONGS M/S LAXMI SAI ENTERPRISE S. SECTION 158BB PRESCRIBES THAT WHERE A SEARCH IS INITIATION U/S 1 32 OR BOOKS OF ACCOUNT ETC. ARE REQUISITIONED U/S 132A IN THE CASE OF ANY PERSON THEN THE UNDISCLOSED INCOME OF THAT PERSON SHALL BE ASSESSED IN ACCORDANCE WITH THE CHAPTER XIV B OF THE IT ACT. SEARCH U/S 132 IS PERSON SPECIFIC AND NOT PREMISES SPECIFIC. IT FOLLOWS THAT IF THE NAME OF T HE ASSESSEE AGAINST WHOM THE BLOCK ASSESSMENT HAS BEEN MADE DOES NOT FIGURE IN THE WARRANT OF IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 10 10 AUTHORIZATION ISSUED U/S 132 THE BLOCK ASSESSMENT WOULD BE UNAUTHORIZED AND VOID AB INITIO. IT IS THE CORRE CT LEGAL POSITION IT WOULD FOLLOW THAT THE ADDITIONAL GROUND IS WELL FOUNDED. THE CONTENTION OF THE REVENUE IS THAT AS THE PREMISES SEARCHED BELONG TO THE ASSESSEE AS SUCH PROCEEDINGS AGAINST IT U/S 158BC IS VALID WHICH CAN NOT BE ACCEPTED. AS PER SECTION 158BB (1) R.W.S. 132(1) THE POSITION I S CLEAR THAT IN ORDER TO ASSESS THE UNDISCLOSED INCOME OF ANY PERSON IN ACCO RDANCE WITH CHAPTER XIV B A SEARCH IS A PREREQUISITE FOR THE INITIATIO N OF THE BLOCK ASSESSMENT PROCEEDINGS. IN THE PRESENT CASE THERE IS NO VALI D SEARCH IN THE CASE OF THE ASSESSEE U/S 132 OF THE ACT. INITIATION OF PRO CEEDINGS U/S 158BC IS NOT POSSIBLE. IN THIS CASE ANY ACTION TO BE TAKEN AGAINST THE ASSESSEE IS ONLY U/S 158BD IF THERE IS ANY EVIDENCE FOUND DURI NG THE COURSE OF SEARCH ACTION IN RESPECT OF OTHER PERSON SHOWING UNDISCLOS ED INCOME OF THE ASSESSEE. THERE IS SPECIFIC PROVISION U/S 158BD IN RESPECT OF WHOM INCRIMINATING MATERIAL IS FOUND IN CASE OTHER THAN THE PERSON WITH RESPECT TO WHOM THE SEARCH WAS MADE U/S 132 OF THE ACT AND THE ASSESSING OFFICER CANNOT ARROGATE HIMSELF TO BYPASS THE PRESCRIBED PR OCEDURES AND ISSUE NOTICE U/S 158BC ON A PERSON WHO WAS NOT SUBJECT TO SEARCH. IN THE PRESENT CASE SINCE THERE IS NO SEARCH WARRANT IN T HE NAME OF M/S LAXMI SREE ENTERPRISES THE BLOCK ASSESSMENT PROCEEDINGS INITIATED U/S 158BC IS BAD IN LAW AND THE ASSESSMENT ORDER IS IN VALID. THE JUDGEMENT RELIED BY THE ASSESSEE COUNSEL IN THE CASE OF SMT. NASREEN YU USUF DHANANI VS. ACIT (24 SOT 31) (MUM) SHRI C RAMAIAH REDDY VS. A CIT (87 ITD 439) (BLORE) IS ALSO SUPPORTS OUR VIEW. THE SAME IS T HE POSITION IN THE CASE OF M/S AMMA ENTERPRISES (IT(SS)A.68/H/2004) SHRI JASW ANT RAO (IT(SS)A.70/H/2004) AND SHRI M. BHIMA RAO (IT(SS)A. 128/H/2004). IN THE CASE OF M/S AMMA ENTERPRISES (IT(SS)A.68/H/2004 ) WARRANT HAS BEEN ISSUED IN THE NAME OF S/SHRI K. MADHAVA REDDY & K. SANJEEVA REDDY AND THE PLACE TO BE SEARCH IS THE PREMISES OF M/S AMMA FINANCE & M/S SIRI FINANCE SHOP NO.22 & 127 ALLURI COMMERCIAL COMP LEX KUKATPALLY IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 11 11 HYDERABAD. IN THE CASE OF SHRI JESWANT RAO (IT(SS) A.70/H/2004) NO SEARCH WARRANT HAS BEEN PRODUCED BEFORE US FOR OUR CONSIDERATION. THE PANCHANAMA SHOWS THE WARRANTS BEING ISSUED IN THE N AME OF S/SHRI K. MADHAVA REDDY & K. SANJEEVA REDDY AND NOT IN THE NA ME OF THE ASSESSEE. IN THE CASE OF SHRI M. BHIMA RAO (IT(SS)A.128/H/200 4 NO SEARCH WARRANT WAS PRODUCED BEFORE US. THE PANCHANAMA SHOWS THE W ARRANTS BEING ISSUED IN THE NAME OF S/SHRI K. MADHAVA REDDY & K. SANJEEVA REDDY AND NOT IN THE NAME OF THE ASSESSEE. SO WE TAKE ADVER SE INFERENCE IN THESE CASES THAT THERE IS NO SEARCH ON THESE ASSESSEES. HENCE THE ASSESSMENT ORDER PASSED IN ALL THESE CASES IS WITHOUT JURISDIC TION AND BAD IN LAW. ACCORDINGLY WE QUASH ALL THE ASSESSMENT ORDERS IN THE CASE OF M/S LAXMI SREE ENTERPRISES (IT(SS)A.67/H/2004) M/S AMMA ENTE RPRISES (IT(SS)A.68/H/2004) SHRI JESWANT RAO (IT(SS)A.70/H /2004) AND IN THE CASE OF SHRI M. BHIMA RAO (IT(SS)A.128/H/2004). 15. THE ASSESSMENT ORDER PASSED IN THE CASE OF M/ S SREE ENTERPRISES (IT(SS)A.69/H/2004) IS U/S 158BD OF THE IT ACT. THIS ASSESSMENT IS FRAMED CONSEQUENT TO SEARCH ACTION CO NDUCTED AT THE PREMISES OF SHRI M. HANUMANTHA RAO PARTNER OF THE ASSESSEE FIRM. FURTHER THE MATERIALS GATHERED DURING THE COURSE O F SEARCH ACTION CONDUCTED IN THE CASE OF S/SHRI K. MADHAVA REDDY & K. SANJEEVA REDDY AT THE PREMISES M/S LAXMI SRI ENTERPRISES IS ALSO USED . IN OUR OPINION THE ASSESSING OFFICER IS CORRECT IN FRAMING THE ASSESSM ENT U/S 158BD OF THE ACT BY USING THE MATERIALS GATHERED FROM THE SEARCH ACTION CONDUCTED IN THE CASE OF SHRI M. HANUMANTHA RAO AND ALSO IN THE CASE OF M/S SRI.K. MADHAVA REDDY & SANJEEVA REDDY. IN THE CASE OF SHR I K. MADHAVA REDDY & SRI SANJEEVA REDDY THE PREMISES SEARCHED WERE BE LONGING TO M/S LAXMI ENTERPRISES. AS SUCH WE CANNOT SAY THAT THE ASSES SING OFFICER USED ANY SEARCH MATERIAL UNEARTHED BY WAY OF ILLEGAL SEARCH ACTION. IN OUR OPINION THERE IS A VALID SEARCH ACTION IN THE CASE OF SHRI M. HANUMANTHA RAO AND IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 12 12 IN THE CASE OF S/SHRI K MADHAVA REDDY & K SANJEEVA REDDY AND CONSEQUENT TO THESE SEARCH ACTIONS U/S 158BD NOTICE WAS ISSUED TO THESE ASSESSEES AND ASSESSMENT ORDERS FRAMED ACCORDINGLY. WE DO NOT FIND ANY MERIT IN THE ADDITIONAL GROUND RAISED BY THE ASSESS EE WITH REGARD THE VALIDITY OF THE ASSESSMENT ORDER U/S 158BD OF THE I T ACT. THE ADDITIONAL GROUND IN THE CASE OF M/S SREE ENTERPRISES STANDS D ISMISSED. 16. THE NEXT COMMON GROUND IN IT(SS)A.67 68 & 69 /H/2004 IS THAT THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF BAD DEBTS PARTNERS REMUNERATION AND INTEREST PAID TO PARTNERS. 17. IN THE CASE OF M/S LAXMI SRI ENTERPRISES (IT( SS)A.67/H/2004) THE CIT(A) HELD THAT THE PARTNERSHIP DEED SEIZED DU RING THE SEARCH DID NOT AUTHORIZE THE PAYMENT OF INTEREST AND REMUNERATION TO PARTNERS. THERE WAS A REVISED PARTNERSHIP DEED EXECUTED ON 1.4.99 W HICH AUTHORISED THE PAYMENT OF INTEREST AND REMUNERATION TO PARTNERS. THIS WAS NOT FILED BEFORE THE LOWER AUTHORITIES AS THE ASSESSEE WAS UN DER THE ERRONEOUS IMPRESSION THAT WHAT WAS SEIZED DURING THE SEARCH W AS THIS REVISED DEED OF PARTNERSHIP AND NOT THE EARLIER DEED EXECUTED ON 25.7.1998 WHICH DID NOT REFER TO THE PAYMENT OF INTEREST AND REMUNERATI ON TO PARTNERS. THE LEARNED AR DREW OUR ATTENTION TO THE REVISED PARTNE RSHIP DEED AND PRAYED BEFORE US TO CONSIDER THE SAME AS ADDITIONAL EVIDEN CE. ACCORDING TO LEARNED AR ALL THE PARTNERS ARE WORKING PARTNERS A ND THE PAYMENT OF INTEREST AND REMUNERATION IS IN ACCORDANCE WITH THE TERMS OF THE SAID PARTNERSHIP DEED AND AS SUCH IT IS TO BE ALLOWAB LE U/S 40(B) OF THE IT ACT. 18. THE ASSESSEE RAISED SIMILAR GROUND IN IT(SS)A .NO.68/H/2004 (M/S AMMA ENTERPRISES) IS ABOUT THE DISALLOWANCE OF INTEREST AND REMUNERATION TO PARTNERS AND BAD DEBTS. THE LEARNE D AR SUBMITTED THAT THERE IS NO DISPUTE ABOUT THE GROSS RECEIPTS. THE GROSS RECEIPTS ARE IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 13 13 ADOPTED BY THE ASSESSING OFFICER AS PER THE SEIZED RECORD. IN HIS DEPOSITION DATED 2.11.2000 SRI JESWANT RAO PARTNER CLEARLY MENTIONED THAT THE ENTIRE EXPENDITURE WAS NOT RECORDED IN THE SEIZED M ATERIAL. HOWEVER HE MENTIONED THAT THE VOUCHERS FOR THE EXPENDITURE WER E AVAILABLE. THE VERSION OF THE ASSESSEE ABOUT THE AVAILABILITY OF T HE VOUCHERS WAS NEVER CHALLENGED BY THE DEPARTMENT AT ANY STAGE. THE A CCOUNTS FILED BEFORE THE ASSESSING OFFICER WERE BASED UPON THE VOUCHERS AND SO THERE IS NO JUSTIFICATION FOR DISALLOWANCE OF OTHER EXPENDITURE . HOWEVER AS NO PARTNERSHIP DEED WAS FILED THE DISALLOWANCE OF INT EREST AND REMUNERATION TO PARTNERS IS IN ACCORDANCE WITH THE TERMS OF SECT ION 40(B) OF THE ACT. HE DREW OUR ATTENTION TO THE DETAILS OF BAD DEBTS WRIT TEN OFF PLACED AT THE ASSESSEES PAPER BOOK AT PAGE NOS.54 TO 68. 19. THERE IS A SIMILAR GROUND IN IT(SS)A.69/H/200 4(M/S SREE ENTERPRISES) . ACCORDING TO LEARNED AR THE CIT(A) ERRED IN CONFIR MING THE DISALLOWANCE OF INTEREST AND REMUNERATION PAID TO P ARTNERS. THE CIT(A) STATED THAT AS PER CLAUSE (B) OF EXPLANATION TO SEC . 158BB(1) THE UNDISCLOSED INCOME OF A FIRM HAS TO BE DETERMINED B EFORE ALLOWING DEDUCTION OF INTEREST AND REMUNERATION TO PARTNERS NOT BEING A WORKING PARTNER. HE DISALLOWED THE DEDUCTION FOR THESE ITE MS ONLY BECAUSE THEY WERE NOT RECORDED IN REGULAR BOOKS. THIS IS NOT A TENABLE CONSIDERATION. UNDISCLOSED INCOME HAS TO BE COMPUTED AS PER THE PR OVISIONS OF ACT WHICH INCLUDES SECTION 40(B). HE SUBMITTED THAT ALL THE PARTNERS OF THE ASSESSEE FIRM ARE THE WORKING PARTNERS AS THIS IS EVIDENT FR OM THE TERMS OF THE PARTNERSHIP DEED WHICH IS PLACED AT PAGE 22 TO 26 O F THE ASSESSEES PAPER BOOK. AS THEY ARE WORKING PARTNERS INTEREST AND R EMUNERATION PAID TO PARTNERS HAS TO BE ALLOWED. 20. WE HAVE HEARD BOTH THE PARTIES ON THE ISSUE R ELATING TO ALLOWABILITY OF REMUNERATION INTEREST TO THE PARTNE RS. IN OUR OPINION THIS IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 14 14 GROUND IN IT(SS)A.NO.67 & 68/H/2004 DOES NOT REQUIR ED ADJUDICATION AS WE HAVE CANCELLED THE ASSESSMENT. HOWEVER IN THE CASE OF M/S SREE ENTERPRISES (IT(SS)A.69/H/2004) AS SEEN FROM CLAU SE NO.6 OF THE PARTNERSHIP DEED DATED 13.9.1995 PLACED AT PAPER B OOK PAGE NOS. 22 TO 26 SHRI M. HANUMANTHA RAO SHRI G. NARAYANA DAS AND MRS. G. PADMA ARE WORKING PARTNERS OF THE PARTNERSHIP FIRM AND FR OM THE PERIOD 13.9.1995 THEY ARE ENTITLED FOR SALARY AS PER THE PARTNERSHIP DEED SUBJECT TO THE PROVISIONS OF SECTION 40(B) OF THE IT ACT. ACCORDINGLY THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED. 21. IN IT(SS)A.NO.67 68 & 69/H/2004 THE ASSESSEE RAISED A GROUND WITH REGARD TO DISALLOWANCE OF BAD DEBTS. 22. WITH REGARD TO M/S LAKSHMI SRI ENTERPRISES (IT(SS)A.67/H/2004) THE LEARNED AR SUBMITTED THAT THERE IS NO JUSTIFICATION FOR DISALLOWANCE OF BAD DEBTS. THE I NCIDENCE OF BAD DEBTS IS NORMAL IN THE LINE OF BUSINESS RUN BY THE ASSESSEE. THEY ARE WRITTEN OFF IN THE CONSTRUCTED ACCOUNTS FILED BEFORE THE ASSESSING OFFICER AND THE DETAILS OF THE BAD DEBTS ARE GIVEN IN ASSESSEES PAPER BOOK AT PAGES 72 TO 95 . 23. FURTHER THE LEARNED AR DREW OUR ATTENTION TO THE SWORN DEPOSITION OF MANAGING PARTNER SHRI D.RAJENDER RAO DATED 2.11.2000 WHICH IS PLACED AT ASSESSEES PAPER BOOK AT PAGE NO S.14 TO 37. AS PER THIS ALL THE RECEIPTS WERE RECODED IN THE SEIZED MATERIA L BUT EXPENDITURE WAS NOT RECORDED. ACCORDING TO HIM MR. RAO HAS ALSO MENTIONED THE DETAILS OF SUCH EXPENDITURE. WITHOUT SUCH EXPENDITURE LIKE SALARIES AND PAYMENT OF COMMISSION TO AGENTS DISTRIBUTION OF PRIZES ETC . IT IS NOT POSSIBLE TO RUN A FINANCE BUSINESS. WHEN THERE IS NO DISPUTE ABOU T THE GROSS RECEIPTS IN THE SEIZED MATERIAL AND THERE IS A DISPUTE ABOUT TH E EXPENDITURE IT IS NORMAL TO ESTIMATE THE NET PROFIT AT A REASONABLE P ERCENTAGE OF THE GROSS IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 15 15 RECEIPTS. HE SUBMITTED THE FOLLOWING DETAILS OF UN DISPUTED GROSS RECEIPTS BEFORE US: ASSESSMENT YEAR 1999-2000 RS.7 68 820.00 ASSESSMENT 2000 -01 RS.24 36 450.00 RECEIPTS FOR PART PERIOD 1.4.2000 TO 8.9.2000 RS.10 85 700.00 ================== TOTAL RS.42.90.970.00 =================== 23. 1 HE SUBMITTED THAT EVEN IF THE NET PROFIT IS ESTIMATED AT 20% OF THE GROSS RECEIPTS THE UNDISCLOSED INCOME SHOULD B E ONLY RS.8 58 194/- AND THIS IS WITHOUT PREJUDICE TO THE MAIN PLEA THAT THE ASSESSMENT U/S 158BC IS INVALID AND REQUIRES TO BE QUASHED. 24. HE SUBMITTED THAT IN THE CASE OF M/S AMMA ENT ERPRISES (IT(SS)A.68/H/2004) THE CIT(A) HAS DETERMINED THE U NDISCLOSED INCOME AT RS.7 21 190/- ON GROSS RECEIPTS OF RS.15 15 220/- W HICH MAKES A RETURN OF 47% WHICH IS ABNORMALLY HIGH. WITHOUT PREJUDIC E TO THE MAIN PLEA THAT THE ASSESSMENT ITSELF IS INVALID HE SUBMITTED THAT THE NET PROFIT MAY BE ESTIMATED AT 20%. 25. WITH REGARD TO SREE ENTERPRISES (IT(SS)A.69/H /2004 ) IT WAS SUBMITTED THAT THE CIT(A) HAS SIMPLY MENTIONED THA T THE CONDITIONS MENTIONED IN SUB SECTION (2) OF SECTION 36(1) (VII) ARE NOT SATISFIED. THE DETAILS OF THE BAD DEBTS ARE GIVEN AT PAGES 43 TO 4 6 OF THE ASSESSEES PAPER BOOK AND THEY ARE ALL WRITTEN OFF IN THE CONSTRUCTE D ACCOUNTS FILED BEFORE THE ASSESSING OFFICER AND SO THEY HAVE TO BE ALLOWE D. IT WAS FURTHER SUBMITTED THAT IN A SITUATION WHERE THERE IS NO DIS PUTE ABOUT THE GROSS IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 16 16 RECEIPTS AND THERE IS A DISPUTE ABOUT THE EXPENDITU RE IT IS NORMAL TO ESTIMATE THE NET PROFIT AT A REASONABLE %. 26. AS FAR AS THE ADDITION OF RS.2 77 218/- IS CO NCERNED HE SUBMITTED THAT NO EXPENDITURE HAS BEEN ALLOWED AGAI NST THIS ADDITION. IN OTHER WORDS THE ENTIRE GROSS RECEIPTS OF RS.2 77 2 18/- IS BROUGHT TO TAX WITHOUT ANY DEDUCTION FOR EXPENDITURE. 27. HE SUBMITTED THAT IN THIS CASE THERE IS NO D ISPUTE ABOUT THE GROSS RECEIPTS. THE DISPUTE IS ONLY ABOUT THE ALLO WABLE EXPENDITURE. IN SUCH A SITUATION IT IS NORMAL TO ESTIMATE THE NET PROFIT AT A REASONABLE %. THE GROSS RECEIPTS IN THIS CASE ARE RS.11 94 088/- AND THE UNDISCLOSED INCOME DETERMINED BY THE ASSESSING OFFICER IS AT RS .10 91 969/- THIS GIVES A RETURN OF 91.4% WHICH IS ABNORMALLY HIGH. THE CI T(A) DETERMINED THE UNDISCLOSED INCOME AT RS.9 44 684/- WHICH GIVES A R ETURN OF RS.79.1% WHICH IS ALSO ABNORMALLY HIGH. THE NET PROFIT MAY BE ESTIMATED AT ABOUT 20%. THIS IS WITHOUT PREJUDICE TO THE MAIN PLEA TH AT THE ASSESSMENT ITSELF IS INVALID. 28. THERE IS ALSO GROUND IN IT(SS)A.69/H/2004 THA T THE CIT(A) ERRED IN ALLOWING ONLY 80% OF THE OTHER EXPENDITURE AND NOT 100%. THE ASSESSING OFFICER ALLOWED THE ENTIRE EXPENDITURE RE CORDED IN THE SEIZED MATERIAL. THE CIT(A) DISALLOWED INTEREST AND REMUN ERATION PAID TO PARTNERS AND BAD DEBTS AND ALLOWED ONLY 80% OF THE OTHER EXPENDITURE. IN THE PROCESS HE DISALLOWED EVEN A PORTION OF THE O THER EXPENDITURE RECORDED IN THE SEIZED MATERIAL AS ALLOWED BY THE A SSESSING OFFICER. THE LEARNED AR SUBMITTED THAT THERE IS NO JUSTIFICATION FOR DISALLOWING THAT PORTION OF THE OTHER EXPENDITURE WHICH HAS BEEN ALL OWED BY THE ASSESSING OFFICER. IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 17 17 29. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIALS AVAILABLE ON RECORD. THE ABOVE GROUNDS OF APPEALS IN IT(SS)A.67 & 68/H/2004 DOES NOT REQUIRE ADJUDICATION SINCE WE HA VE CANCELLED THE ASSESSMENT. HOWEVER IN THE CASE OF IT(SS)A.69/H/2 004 SINCE THE BAD DEBT WILL BE USUALLY WRITTEN OFF AT THE END OF THE YEAR AND NOT IN THE MIDDLE OF THE YEAR. IN THIS CASE THE ASSESSEE HAS ACTUAL LY WRITTEN OFF THE BAD DEBTS WHICH IS EVIDENT BY THE CONSTRUCTED ACCOUNTS PLACED AT THE PAPER BOOK AT PAGE NOS.43 TO 46 AND THE ASSESSEES CLAIM OF BAD DEBTS IS TO BE ALLOWED AS THE CONDITION LAID DOWN U/S 36 (1)(VII) ARE SATISFIED. 30. REGARDING THE CLAIM OF EXPENDITURE IN IT(SS)A .NO.69/H/2004 WE ARE OF THE OPINION THAT THE UNDISCLOSED INCOME E STIMATED BY THE ASSESSING OFFICER WITHOUT ALLOWING DEDUCTION TOWARD S EXPENDITURE IS NOT JUSTIFIED. THE BUSINESS CANNOT BE CARRIED ON WITHO UT INCURRING EXPENDITURE. CONSIDERING THE FACTS AND CIRCUMSTANC ES OF THE CASE WE DIRECT THE ASSESSING OFFICER TO ESTIMATE THE INCOME AT 30% OF THE GROSS RECEIPTS. FURTHER ONCE THE INCOME IS ESTIMATED AT 30% OF THE GROSS RECEIPTS THERE CANNOT BE ANY FURTHER DISALLOWANCE TOWARDS EXPENDITURE. 31. THE GROUND IN IT(SS)A.NO.128/H/2004 (SHRI M. BHIM RAO) IS WITH REGARD TO ADDITION OF RS.13 20 000/- MADE BY THE ASSESSING OFFICER WHICH IS CONFIRMED BY THE CIT(A). THE ASSESSEE HAS MADE INVESTMENTS TO THE TUNE OF RS.13 20 000/- WHICH ARE DETAILED IN PA RA NO.3 OF THE ORDER OF THE CIT(A). IT WAS ALSO STATED THAT HE RECEIVED CERTAIN GIFTS AND ALSO LOANS. IT WAS ALSO STATED THAT HE RECEIVED ABOUT R S.10 20 000/- FROM HIS FATHER. THE FATHER OF THE ASSESSEE SHRI M. JAN ARDHAN RAO FILED AN AFFIDAVIT WHICH IS PLACED AT PAGE NOS.36 TO 38 OF T HE ASSESSEES PAPER BOOK. ACCORDING TO WHICH HIS FAMILY OWNED ABOUT 26 ACRES OF AGRICULTURAL LAND AND THE AGRICULTURAL INCOME DERIVED BY THE FAMILY D URING THE BLOCK PERIOD IS ABOUT RS.47 LAKHS OUT OF WHICH AN AMOUNT OF RS.1 2 LAKHS EACH WAS IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 18 18 GIVEN TO HIS TWO SONS. ACCORDING TO THE LEARNED AR THERE IS NO JUSTIFICATION FOR CIT(A) TO HAVE CONFIRMED THE ADDITIONS. 32. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. THIS GROUND IN IT(SS)A 128/H/2004 DOES NOT REQUIRE ADJUDICATION SI NCE WE HAVE QUASHED THE ASSESSMENT ITSELF WHILE DECIDING THE ADDITIONAL GROUND RAISED BY THE ASSESSEE. 33. THE COMMON GROUND IN IT(SS)A.67 68 69 AND 7 0 128 & 131/H/2004 IS ABOUT THE LEVY OF SURCHARGE. THIS GR OUND IN APPEALS IN IT(SS)A. NO.67 68 70 AND 128/H/2004 DOES NOT REQ UIRE ADJUDICATION AS WE HAVE ANNULLED THE ASSESSMENT AS BAD IN LAW BY AL LOWING THE ADDITIONAL GROUND BY HOLDING THAT THERE IS NO SEARCH WARRANT O N THESE RESPECTIVE ASSESSEES. ACCORDINGLY THIS GROUND IN THESE APPEA LS IS DISMISSED. FURTHER THIS GROUND IS NOT PRESSED IN IT(SS)A NO. 69 & 131/H/2004 AS THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DE CISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SURESH GUPTA ( 297 ITR 322) AND THIS GROUND IS DISMISSED AS NOT PRESSED IN ALL THESE TWO APPEALS. 34. THE GROUND IN REVENUE APPEAL IN THE CASE OF M /S LAXMI SRI ENTERPRISES (IT(SS)A NO.76/H/2004) IS THAT THE CIT( A) DISALLOWED BAD DEBTS INTEREST AND REMUNERATION TO PARTNERS. HE A LLOWED 80% OF THE BALANCE OF THE EXPENDITURE AND DISALLOWED 20%. BY THIS METHOD HE DISALLOWED 20% OF EVEN THE EXPENDITURE RECORDED IN THE SEIZED MATERIAL WHICH IS ALLOWED BY THE ASSESSING OFFICER. THERE IS NO JUSTIFICATION FOR DISALLOWING THE EXPENDITURE RECORDED IN THE SEIZED MATERIAL WHEN THE GROSS RECEIPTS RECORDED IN THE SEIZED MATERIAL ARE ADOPTE D FOR ASSESSMENT. THE UNDISCLOSED INCOME DETERMINED BY THE CIT(A) WORKS O UT TO RS.15 43 577/- ON GROSS RECEIPTS OF RS.42 90 970/- WHICH GIVES A N ET RETURN OF ABOUT 36% WHICH IS VERY HIGH. A REASONABLE ESTIMATE OF NET P ROFIT OF ABOUT 20% GIVES IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 19 19 ONLY AN UNDISCLOSED INCOME OF RS.8 58 194/-. THE O RDER OF THE CIT(A) IS VERY MUCH IN FAVOUR OF THE DEPARTMENT AND AS SUCH T HERE IS NO BASIS FOR THE DEPARTMENTAL APPEAL. THERE IS NOT EVEN A PAN CHANAMA IN THE NAME OF THE ASSESSEES FIRM AND TO THAT EXTENT THERE IS NO SEARCH AND THE ASSESSMENT ITSELF IS INVALID. THE LEARNED AR RELIE D ON THE ORDER OF THE CIT(A). 35. THE GROUND IN REVENUE APPEAL IN THE CASE OF M /S AMMA ENTERPRISES (IT(SS)A NO.78/H/2004) IS THAT THE CIT( A) DETERMINED THE NET RETURN AT 47% OF THE GROSS RECEIPTS WHICH IS ABNORM ALLY HIGH. 36. WE HAVE HEARD BOTH THE PARTIES. THESE TWO DE PARTMENTAL APPEALS IN IT(SSA) NOS.76 & 78/H/2004) HAVE BECOME INFRUCTUOUS SINCE WE HAVE CANCELLED THE ASSESSMENT IN THESE CASES OF THE ASSESSEES BY HOLDING THE ASSESSMENT FRAMED U/S 158BC IS BAD IN L AW. ACCORDINGLY THESE TWO DEPARTMENTAL APPEALS ARE DISMISSED. 37. THE GROUND IN REVENUE APPEAL IN IT(SS)A NO.79 /H/2004) (M/S SREE ENTERPRISES) IS THAT THE CIT(A) DETERMINED THE NET RETURN AT 79.1% OF THE GROSS RECEIPTS WHICH IS ABNORMALLY HIGH. 38. WE HAVE HEARD BOTH PARTIES ON THIS ISSUE AND THIS GROUND RAISED BY THE REVENUE HAVE BECOME INFRUCTUOUS SINCE WE HAVE DIRECTED THE ASSESSING OFFICER IN THE ASSESSEES APPEAL IN IT(SS )A.69/H/2004 IN THIS CASE TO ESTIMATE THE INCOME OF THE ASSESSEE AT 30% GROSS RECEIPTS AND ALSO GIVEN THE DIRECTION THAT ONCE THE INCOME IS ESTIMAT ED AT 30% OF THE GROSS RECEIPTS THERE CANNOT BE ANY FURTHER DISALLOWANCE TOWARDS EXPENDITURE. ACCORDINGLY THE REVENUE APPEAL IN IT(SS)A.79/H/200 4 STANDS DISMISSED. IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 20 20 39 . THE GROUND IT(SS)A.70/H/2004 (SHRI JESWANT RAO) IS THAT THE CIT(A) ERRED IN HOLDING THAT THE FOLLOWING INVESTME NTS MADE BY THE ASSESSEE REPRESENT HIS UNDISCLOSED INCOME: A) M/S SREE ENTERPRISES RS.5 00 000 B) M/S AMMA ENTERPRISES RS.3 00 000 C) LAND AT MIYAPUR RS.4 20 000 40. ACCORDING TO THE LEARNED AR THE CIT(A) HAS NOT GIVEN ANY CREDIT FOR THE AGRICULTURAL INCOME OF THE ASSESSEE. HE HAS THREE ACRES OF AGRICULTURAL LAND IN HIS OWN NAME BESIDES 5 ACRES IN THE NAME OF HIS WIFE. THE ASSESSEE HAS FILED A CERTIFICATE FROM TH E MRO THAT THE ASSESSEE HAS BEEN CULTIVATING PADDY AND VEGETABLES ON THE LA ND OWNED BY HIM AND HIS WIFE AND THAT THE AGRICULTURAL INCOME PER ANNUM DERIVED BY THE COUPLE IS ABOUT RS.4 25 000/- PER ANNUM. HE DREW OUR ATTE NTION TO THE CERTIFICATE OF THE MRO WHICH IS PLACED AT PAGE NO.3 4 OF THE ASSESSEE PAPER BOOK. ACCORDING TO LEARNED AR THE ASSESSEE HAS AL SO RECEIVED AN AMOUNT OF RS.1 40 000/- FROM HIS FATHER AND HE DREW OUR AT TENTION TO THE COPY OF AN AFFIDAVIT FROM HIS FATHER WHICH IS PLACED AT PAG E NO.33 OF THE ASSESSEE PAPER BOOK. ACCORDING TO LEARNED LEARNED AR THE CIT(A) WRONGLY REJECTED THE AFFIDAVIT ON THE GROUND THAT THE BROTHER OF THE ASSESSEE HAS BORROWED FUNDS TO PERFORM HIS DAUGHTERS MARRIAGE AND SO THE FATHER OF THE ASSESSEE COULD NOT HAVE GIVEN ANY FUNDS TO THE ASSESSEE. HE DREW OUR ATTENTION TO THE RECEIPT AND PAYMENT ACCOUNT WHICH IS PLACED AT PAGE NOS. 35 AND 36 OF THE PAPER BOOK AND THE RECEIPTS AND PAYMENTS ACCOUN T OF THE FATHER OF THE ASSESSEE ARE PLACED AT PAGE NOS. 29 TO 33 OF THE AS SESSEES PAPER BOOK. ACCORDING TO THE LEARNED AR IF CREDIT IS GIVEN FOR THE AGRICULTURAL INCOME AND FOR THE BORROWINGS FROM THE FATHER ETC. THEN TH E INVESTMENTS ARE TO HE HELD TO BE EXPLAINED. AND THIS ARGUMENT IS WITHOUT PREJUDICE TO THE MAIN IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 21 21 CONTENTION THAT THE ASSESSMENT U/S 158BC IS INVALID AS THERE IS NO SEARCH WARRANT IN THIS CASE. 41. AFTER HEARING BOTH THE PARTIES WE ARE OF THE OPINION THAT THIS GROUND REQUIRES NO ADJUDICATION SINCE WE HAVE ANNUL LED THE ASSESSMENT WHILE DECIDING THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IN THIS CASE. 42. THE GROUND IN REVENUE APPEAL IT(SS)A NO.77/H/ 04 (D.RAJENDER RAO) IS THAT THE ASSESSEE HAS MADE AN I NVESTMENT OF RS.7 35 000/- BY WAY OF SHARE CAPITAL IN M/S SREE ENTERPRISES AND M/S MARUTHI CONSTRUCTIONS. THE LEARNED AR SUBMITTED TH AT THE ASSESSEE HAS SUBSTANTIAL AGRICULTURAL HOLDINGS IN THE NAME OF HU F AND IN THE NAME OF HIS WIFE. THE ASSESSEE HAS FILED A CERTIFICATE ISS UED BY THE MANDAL REVENUE OFFICER TO THE EFFECT THAT HIS FATHER DERIVED INCOM E OF RS.2 10 000/- P.A. FROM AGRICULTURAL OPERATIONS. THE SAID CERTIFICATE IS PLACED AT PAGE NO.39 OF THE ASSESSEE PAPER BOOK. HE ALSO DREW OUR ATTENTIO N TO THE AFFIDAVIT FROM HIS FATHER TO THE EFFECT THAT HE PROVIDED FUNDS TO THE ASSESSEE FOR INVESTMENT IN THE ABOVE MENTIONED FIRMS. THE ASSES SEE ALSO FILED A RECEIPTS AND PAYMENTS ACCOUNT WHICH IS PLACED AT PA GE NOS. 37 & 38 OF THE ASSESSEE PAPER BOOK. HIS EXPLANATION FOR THE INVES TMENTS IS PLACED AT PAGE 35 OF THE ASSESSEE PAPER BOOK. 43. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIALS AVAILABLE ON RECORD. IN THE COURSE OF SEARCH ACTIO N IT WAS NOTICED THAT THE ASSESSEE MADE AN INVESTMENT OF RS.1 80 000/- IN M/S MARUTI CONSTRUCTIONS RS.5 LAKHS IN M/S LAXMI SRI ENTERPRI SES AND RS.55 000/- IN M/S SREE CONSTRUCTIONS. THUS THE TOTAL INVESTM ENTS WORKS OUT TO RS.7 35 000/- . IT WAS STATED BY THE ASSESSEE IN T HE STATEMENT RECORDED ON 31.10.2000 THAT HIS JOINT FAMILY OWNS 50 ACRES OF A GRICULTURAL LAND BESIDES 5 ACRES OF LAND OWNED BY HIS WIFE. THE INVESTMENTS MADE IN THE ABOVE IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 22 22 THREE FIRMS WERE OUT OF AGRICULTURAL INCOME RECEIVE D FROM HIS FATHER AND HIS WIFE. THE ASSESSEE ALSO FILED AN AFFIDAVIT FROM HI S FATHER STATING THAT HE IS OWING 57 ACRES AND 12 GUNTAS OF AGRICULTURAL LAND A ND HE HAS BEEN EARNING RS.2 20 000/- P.A. FROM AGRICULTURAL INCOME AND HE HAS GIVEN SUBSTANTIAL AMOUNT FROM FINANCIAL YEAR 1990-91 TO 1 999-2000. THE ASSESSEE HAS ALSO FILED A COPY OF PATTA PASS BOOK T O SUBSTANTIATE OWNING OF THE AGRICULTURAL LAND. FURTHER A CERTIFICATE FROM MANDAL REVENUE OFFICER WAS ALSO FILED TO CONFIRM THAT HIS FATHER SHRI LAXM I KANTA RAO G. OWNS AGRICULTURAL LAND BEARING SURVEY NO.308 310 TO 316 TOTAL CULTIVATED TO THE EXTENT OF 29 ACRES SITUATED AT NAGANAPALLY VILLAGE AND AT PRESENT CROPS LIKE PADDY JOWAR AND VEGETABLES ARE GROWN AND ANNU AL AGRICULTURAL INCOME WOULD BE ABOUT RS.2.10 LAKHS. THE ASSESSEE ALSO FILED CASH FLOW STATEMENT REFLECTING INCOME FROM INTEREST CEMENT B USINESS AND AGRICULTURAL INCOME. AS PER CASH FLOW STATEMENT I NVESTMENT IN M/S MARUTI CONSTRUCTIONS WAS MADE FROM 1.4.1997 TO 1.4. 1999 WORKS OUT AT RS.1 80 630/-. THE INVESTMENTS OF RS.5 LAKHS WAS M ADE IN M/S LAXMI SRI ENTERPRISES IN THE YEAR 1998-99. THE INVESTMENTS O F RS.55 000/- WAS MADE IN M/S SREE CONSTRUCTIONS IN THE YEAR 1997-98. THE ASSESSING OFFICER NOT DISPUTED THE CASH FLOW STATEMENT FILED BY THE ASSESSEE AND HE HAS ALSO NOT EXAMINED THE ASSESSEES FATHER REGARDI NG THE STATEMENTS IN HIS AFFIDAVIT. BEING SO IN OUR OPINION DUE CRED IT IS TO BE GIVEN TO THE EXPLANATION GIVEN BY THE ASSESSEE AND THE SOURCES O F RS.7 35 000/- IS SAID TO BE EXPLAINED BY THE ASSESSEE. DELETION BY THE C IT(A) ON THIS COUNT IS JUSTIFIED. THE APPEAL OF THE REVENUE IN IT(SS)A.NO .77/H/2004 IS DISMISSED. 44. THE GROUND IN ASSESSEES APPEAL IN IT(SS)A NO .130/H/04 (K.SANJEEVA REDDY ) IS THAT THE CIT(A) ERRED IN CON FIRMING THE ADDITION OF RS.7 50 000/- BEING THE CAPITAL CONTRIBUTED BY THE ASSESSEE IN M/S RAGHUSAI ENTERPRISES AND M/S LAXMISAI ENTERPRISES. THE ASSESSEE IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 23 23 INVESTED A TOTAL OF RS.9 LAKHS IN THESE TWO FIRMS. THE ASSESSING OFFICER MENTIONED THAT THE ASSESSEE HAS DISCLOSED ONLY AN I NVESTMENT OF RS.1.5 LAKHS IN THESE TWO FIRMS IN HIS REGULAR RETURNS AND SO HE BROUGHT TO TAX THE BALANCE OF RS.7.5 LAKHS AS UNDISCLOSED INCOME. SIMPLY BECAUSE AN INVESTMENT IS NOT RECORDED IN THE BOOKS OR IS NOT D ISCLOSED IN THE REGULAR RETURNS IT CANNOT BE BROUGHT TO TAX. WHEN A BLOC K ASSESSMENT IS MADE THE EXPLANATION GIVEN FOR THE UNRECORDED/UNDISCLOSE D INVESTMENTS HAS NECESSARILY TO BE CONSIDERED. UNRECORDED INVESTMEN TS ARE TO BE CONSIDERED JUST LIKE UNRECORDED RECEIPTS OR UNRECORDED EXPENDI TURE. THE CIT(A) CONSIDERED THE EXPLANATION GIVEN FOR THE UNRECORDED PORTION OF THE INVESTMENT IN THE SAID TWO FIRMS BUT REJECTED THE E XPLANATION. THE ASSESSEE MENTIONED THAT FOR AN AMOUNT OF RS.3 LAKHS THERE WAS AN MOU WITH TWO OTHER PARTIES FOR THE INVESTMENT IN M/S LA XMISAI ENTERPRISES. THE AFFIDAVITS OF THE TWO PARTIES I.E. SRI ADIL SINGH AND SRI VINOD KUMAR ARE PLACED AT PAGE NOS. 65 AND 66 OF THE ASSESSEES PAPER BOOK. AS PER THE AFFIDAVITS THE SAID TWO PARTIES WERE WORKING I N JAMAICA AND THEIR AMOUNTS WERE REMITTED THROUGH REGULAR BANKING CHANN ELS. IT WAS ALSO MENTIONED BEFORE THE CIT(A) THAT THE PARTIES WERE PRODUCED BEFORE THE CIT(A) BUT THEY WERE NOT EXAMINED. THE CIT(A) ERRE D IN REJECTING THESE AFFIDAVITS. FOR THE BALANCE OF INVESTMENT IN THE T WO FIRMS THE ASSESSEE HAS FILED RECEIPTS AND PAYMENTS ACCOUNT BOTH FOR HIMSEL F AND FOR HIS FATHER. HE HAS RECEIVED SOME RENTAL INCOME AND GIFTS FROM F ATHER AND MOTHER AND THERE WERE SOME MARRIAGE GIFTS ETC. THE CONTENTS OF THE RECEIPTS AND PAYMENTS ACCOUNT HAVE NOT BEEN DISPROVED. THE CIT(A ) ERRED IN CONFIRMING THE ADDITION OF RS.7.5 LAKHS WITHOUT ANY BASIS. T HE DR RELIED ON THE ORDER OF THE CIT(A). 45. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIALS AVAILABLE ON RECORD. THE CONTENTION OF THE ASSESS EE IS THAT A SUM OF RS.5 LAKHS IS INVESTED IN M/S LAXMI SREE ENTERPRISES BY HUF IN WHICH THE IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 24 24 ASSESSEE IS THE KARTHA. OUT OF THIS AN AMOUNT OF RS.2 LAKHS IS INVESTED DURING THE FINANCIAL YEAR 1998-99 AND BALANCE AMOUN T OF RS.3 LAKHS WAS INVESTED BY HUF FROM THE AMOUNT RECEIVED FROM SHR I ADIL SINGH RS.2 LAKHS AND SHRI P.K. VINOD KUMAR RS.1 LAKH. THE ASS ESSEE FILED AFFIDAVITS FROM THESE TWO PERSONS. IN THE COURSE OF ASSESSME NT PROCEEDINGS THE ASSESSEE HAS TAKEN THESE TWO PERSONS TO THE OFFICE OF THE ASSESSING OFFICER FOR EXAMINING THEM AND THE ASSESSING OFFICER STATED THAT IT IS NOT NECESSARY TO EXAMINE THESE TWO PERSONS. THE ASSESS ING OFFICER IN THIS CASE REJECTED THE EXPLANATION OFFERED BY THE ASSESS EE WITHOUT EXAMINING THE STATEMENTS MADE IN THE AFFIDAVITS AND EXAMINING THE PARTIES CONCERNED. ACCORDING TO THE DEPARTMENT THE ASSESS EE IS A PARTNER IN BOTH THE FIRMS VIZ. M/S LAXMI SREE ENTERPRISES AND M/S RAGHU SAI ENTERPRISES IN HIS INDIVIDUAL CAPACITY AND NOT AS KARTHA OF HUF AND IN THE FIRM BOOKS THE INVESTMENT OF RS.1.50 LAKHS WAS RECORDED WHEREA S THE ACTUAL INVESTMENT WAS RS.9 LAKHS. BUT THE FACT IS THAT SH RI ADIL SINGH AND SHRI R K VINOD KUMAR HAVE CONFIRMED THE PAYMENTS MADE TO T HE ASSESSEE THROUGH AFFIDAVITS AND THEY ARE WORKING IN ABROAD. MR. ADIL SINGH IS WORKING IN JAMAICA WEST INDIES AS AN ACCOUNTANT A ND SENT RS.2 LAKHS THROUGH BANKING CHALLAN. IN THE CASE OF SHRI P K V INOD KUMAR HE IS ALSO WORKING IN ABROAD AT JAMAICA WEST INDIES AND THE M ONEY WAS SENT THROUGH THE BANKING CHALLEN. IF THE ASSESSING OFFI CER HAS ANY DOUBT REGARDING THEIR CREDITWORTHINESS THEY SHOULD HAVE B EEN PERSONALLY EXAMINED. WITHOUT EXAMINING THESE PARTIES THE ASS ESSING OFFICER IS NOT CORRECT IN SUSTAINING THE ADDITION OF RS.4 LAKHS. REGARDING THE INVESTMENT IN M/S RAGHU SAI ENTERPRISES AT RS.4 LAKHS THE ASS ESSEE IS ENTERED ONLY 50% IN THE BOOKS OF ACCOUNT. HOWEVER THE ASSESSEE EXPLAINED THE INVESTMENTS BY WAY OF RECEIPTS AND PAYMENTS WHICH A RE PREPARED ON THE BASIS OF RETURNS WHICH ARE ALREADY FILED. AS SEEN FROM THE RECEIPTS AND PAYMENTS OF ACCOUNT THE ASSESSEE HAS INVESTED RS.5 0 000/- DURING THE YEAR 1998-99 AND RS.3 LAKHS DURING THE YEAR 1999-20 00 AND RS.50 000/- IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 25 25 INVESTED BY THE HUF DURING THE YEAR 1999-2000. IN OUR OPINION THE ENTIRE AMOUNT OF RS.4 LAKHS HAS BEEN EXPLAINED BY THE ASSE SSEE AND NO ADDITION IS WARRANTED AT RS.3.50 LAKHS ON ACCOUNT OF INVESTM ENT IN M/S RAGHU SAI ENTERPRISES. ACCORDINGLY THIS GROUND OF THE ASSE SSEE IS ALLOWED. 46. THE NEXT GROUND IS THAT THE CIT(A) ERRED IN C ONFIRMING THE ADDITION OF RS.6 98 334/- BEING CERTAIN INVESTMENTS MADE IN THE NAME OF THE ASSESSEES WIFE SMT. RAMA RANI. 47. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. SMT. RAMA RANI FILED THE RETURNS IN HER OWN NAME EXPLAINING T HE INVESTMENTS. THE ASSESSING OFFICER MADE THE ADDITION ON THE GROUND T HAT THE RETURNS WERE FILED SUBSEQUENT TO THE SEARCH. THE CIT(A) UPHELD THE ADDITION ON THE SAME GROUND. SIMPLY BECAUSE CERTAIN INVESTMENTS AR E MADE BY THE WIFE OF THE ASSESSEE IT DOES NOT FOLLOW THAT THE ADDITION DESERVES TO BE MADE IN THE HANDS OF THE ASSESSEE. THE NEXUS BETWEEN THE S AID INVESTMENTS AND THE ASSESSEE IS NOT PROVED. IT IS NOT THE CASE THA T THE ASSESSEE HAS PROVIDED THE FUNDS FOR THE SAID INVESTMENTS OR IS I N CONTROL OF THE INVESTMENTS OR IS IN BENEFICIAL ENJOYMENT OF THE FR UITS OF THE INVESTMENTS. THE CIT(A) MENTIONED THAT THE ASSESSEE HAS NOT PROV ED THAT HE DID NOT MAKE THE INVESTMENTS. THIS IS WRONGLY THROWING THE ONUS ON THE ASSESSEE. THE NEGATIVE CANNOT BE PROVED. IT IS FOR THE DEPAR TMENT TO PROVE THE NEXUS BETWEEN THE INVESTMENT AND THE ASSESSEE. IT IS FOR THE ASSESSEE TO PROVE THAT THERE IS NO SUCH NEXUS. SEC.132(4A) POSTULATE S A PRESUMPTION THAT THE CONTENTS OF THE BOOKS OF ACCOUNTS AND OTHER DOC UMENTS SEIZED DURING THE SEARCH AUTHORISED REPRESENTATIVE TRUE. SO THIS PRESUMPTION THOUGH REBUTTABLE IS IN FAVOUR THE ASSESSEE. THE DEPT HA S NOT DONE ANYTHING TO REBUT THE SAID PRESUMPTION. HENCE IN OUR OPINION THE EVIDENCE BROUGHT ON RECODE IS NOT ENOUGH TO SUSTAIN THE ADDITION IN THE HANDS OF THE ASSESSEE. ACCORDINGLY THE ADDITION OF RS.6 98 33 4/- IS DELETED. IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 26 26 48. THE GROUND RELATING TO LEVY OF SURCHARGE IS N OT PRESSED IN VIEW OF THE JUDGEMENT OF THE HONBLE SUPREME COURT IN T HE CASE CIT VS. SURESH GUPTA (297 ITR 322) (SC) ACCORDINGLY THIS GROUND I S DISMISSED AS NOT PRESSED. THE ASSESSEE APPEAL IN IT(SS)A 130/H/2004 IS PARTLY ALLOWED. 49. THE GROUND IN ASSESSEE APPEAL IN IT(SS)A NO.1 31/H/04 IS THAT THE CIT(A) ERRED IN CONFIRMING THE ESTIMATION OF IN COME FROM CHIT FUND BUSINESS MADE BY THE ASSESSING OFFICER AT RS.5 98 0 00/-. THE ASSESSEE FILED RETURNS OF INCOME IN THE STATUS OF HUF DECLAR ING THE INCOME FROM THE CHIT FUND BUSINESS. THE ASSESSING OFFICER DID NOT CONSIDER THESE RETURNS OF INCOME ON THE GROUND THAT THEY WERE FILED AFTER THE SEARCH. THE CIT(A) ALSO CONFIRMED THE ADDITION IGNORING THE RETURNS OF INCO ME AS THEY WERE FILED AFTER THE SEARCH. THE RETURNS OF INCOME CANNOT BE IGNORED SIMPLY BECAUSE THEY WERE FILED AFTER THE SEARCH. THE HUF OF THE A SSESSEE HAS SUBSTANTIAL AGRICULTURAL HOLDINGS AND THERE IS NO REASON TO REJ ECT THE STATUS OF HUF OR ITS BUSINESS ACTIVITIES. EVEN ON THE DATE OF SEARC H I.E. 8.9.2000 THE ASSESSEE MENTIONED IN HIS SWORN DEPOSITION THAT THE FAMILY HAD 20 ACRES OF AGRICULTURAL LAND AND THAT IT DERIVED ABOUT RS.6 LA KHS OF AGRICULTURAL INCOME P.A. THE STATUS OF HUF CANNOT BE REJECTED F OR THE CHIT BUSINESS AS THERE IS AN ANCESTRAL NUCLEUS. HENCE THE ADDITION OF RS.5 98 000/- DESERVES TO BE DELETED. 50. FURTHER WITHOUT PREJUDICE TO THE ABOVE THE LEARNED AR SUBMITTED THAT A DEDUCTION FOR EXPENDITURE IS GIVE N ONLY AT 25% OF THE GROSS RECEIPTS FROM CHIT OMISSION OF RS.7 98 000 T HE CHIT BUSINESS INVOLVES LOT OF EXPENDITURE AND DEDUCTION OF EXPEND ITURE AT 25% IS TOO LOW. A DEDUCTION OF AT LEAST 60% MAY BE GIVEN. THE DR R ELIED ON THE ORDER OF THE LOWER AUTHORITIES. IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 27 27 51. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIALS ON RECORD. THERE WAS A SEIZED MATERIAL FOUND DURING T HE COURSE OF SEARCH ACTION MARKED AS A/SR/2/P.21 WHICH REFLECTS CHIT TR ANSACTIONS. AS PER THIS SEIZED MATERIALS THE ASSESSEE HAS RECEIVED RS .7 98 000/- AS FOREMAN COMMISSION. ACCORDING TO THE ASSESSEE THIS INCOME IS NOT BELONGING TO THE ASSESSEE. ON THE OTHER HAND THE SAME WAS SHO WN AS INCOME IN THE HANDS OF HUF. IN OUR OPINION THIS IS ONLY AFTER T HOUGHT AS THE SEIZED MATERIAL REFLECTS THE FOREMAN COMMISSION AS INCOME OF THE ASSESSEE ONLY. ACCORDINGLY IT IS TO BE TREATED AS INCOME OF THE A SSESSEE. HOWEVER THE DUE CREDIT IS TO BE GIVEN TOWARDS EXPENDITURE INCUR RED BY THE ASSESSEE AS THE BUSINESS CANNOT BE CARRIED ON WITHOUT EXPENSES. IN VIEW OF THE FACTS OF THE CASE WE FEEL IT APPROPRIATE TO GIVEN DEDUCTION TOWARDS EXPENDITURE AT 40% OF THE INCOME. THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED. 52. THE NEXT GROUND IS THAT THE CIT(A) ERRED IN C ONFIRMING THE INCOME FROM FINANCE BUSINESS AT RS.5 40 000/-. AS PER THE SEIZED MATERIAL THE LOANS GIVEN BY THE ASSESSEE ARE RS.34 05 500/-. THERE ARE ALSO LOANS TAKEN BY THE ASSESSEE AT RS.17 70 000/-. THE ASSESSING OFFICER ESTIMATED THE ANNUAL CIRCULATING CAPITAL AT RS.15 L AKHS AND THE ANNUAL INTEREST AT RS.5 40 000/-. HE WORKED OUT THE RECEI PTS FOR THREE YEARS AT RS.16 20 000/- AND ALLOWED EXPENDITURE FOR 3 YEARS AT RS.1 80 000/-. HE BROUGHT THE BALANCE OF RS.14 40 000/- TO TAX. BEFO RE THE CIT(A) THE ASSESSEE CLAIMED THAT SOME OF THE SEIZED PRO NOTES RELATED TO THE PRICE WINNERS IN THE CHIT BUSINESS. THE DETAILS OF SUCH PRO NOTES WERE GIVEN AT RS.24 LAKHS BEFORE THE CIT(A). THE CIT(A) ESTIMATE D SUCH PRO NOTES AT RS.15 LAKHS AND OBSERVED THAT INTEREST PAID ON LOAN S OBTAINED BY THE ASSESSEE IS ALSO AN ALLOWABLE DEDUCTION. WITH THES E REMARKS HE ESTIMATED THE ANNUAL CIRCULATING CAPITAL AT RS.5 LAKHS AND IN TEREST THEREON AT 36%. ON THIS BASIS HE WORKED OUT THE ANNUAL INTEREST RE CEIVED BY THE ASSESSEE AT RS.1 80 000/- AND FOR 3 YEARS AT RS.5 40 000/-. IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 28 28 53. ACCORDING TO LEARNED AR IF THE AMOUNT OF RS.1 5 LAKHS IS TAKEN OUT OF THE SEIZED PRO NOTES WHAT REMAINS IS ONLY R S.19 05 500/- (34 05 500 LESS RS.15 00 000). AS AGAINST THIS TH E BORROWALS ARE OF RS.17 70 000/-. SO THE PRO NOTES RELATING TO ASSES SEE OWN CAPITAL ARE ONLY RS.1 35 000/-. (19 05 500 LESS 17 70 000). THE RES T OF THE LOANS ARE ONLY OUT OF ASSESSEES BORROWED FUNDS. HE SUBMITTED THA T THE ASSESSEE COULD NOT HAVE MADE MORE THAN 5% INCOME ON LENDING OUT BO RROWED FUNDS AND IN THE CIRCUMSTANCES; ACCORDING TO HIM THE INTERES T INCOME CAN BE ESTIMATED AS UNDER: RS.1 35 000 X 36% = RS.48 780/- RS.17 70 000 X 5% = RS.88 500 ============ RS.1 37 280 ============ 53.1. HE SUBMITTED THAT FOR THREE YEARS OF THE BL OCK PERIOD THE INTEREST RECEIPTS CAN BE OF THE ORDER OF RS.4 11 84 0/-. ON THE OTHER HAND THE LEARNED DR RELIED ON THE ORDER OF THE CIT(A). 54. WE HAVE HEARD BOTH THE PARTIES AND PERUSED T HE MATERIALS AVAILABLE ON RECORD ON THIS ISSUE. IN OUR OPINION THE CIT(A) ORDER IS JUSTIFIED EXCEPT REGARDING THE EXCLUSION OF PROMISS ORY NOTES RELATING TO THE CHIT BUSINESS. THE FACT OF THE ASSESSEE TAKING THE PROMISSORY NOTE FROM THE CHIT BIDDERS AS SECURITY IS NOT DISPUTED BY THE DEPARTMENT. HENCE THE PRO NOTES TAKEN IN RESPECT OF 12 PARTIES TO THE EXT ENT OF RS.24 LAKHS IS TO BE CONSIDERED AS RELATING TO THE CHIT BUSINESS AND CANNOT BE CONSIDERED AS RELATING TO LOAN TRANSACTIONS. ACCORDINGLY THE AS SESSING OFFICER IS DIRECTED TO RE-COMPUTE THE INTEREST INCOME KEEPING IN MIND T HE ABOVE OUR FINDINGS. THIS GROUND TAKEN BY THE ASSESSEE IS PARTLY ALLOWE D. IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 29 29 55. THE GROUND RELATING TO LEVY OF SURCHARGE AND RELATING TO LEVY OF INTEREST U/S 158 BFA IS NOT PRESSED AND ACCORDINGLY DISMISSED AS NOT PRESSED. IN THE RESULT THE ASSESSEES APPEAL IN IT(SS)A.NO.131/H/2004 IS PARTLY ALLOWED. 56. THE GROUND IN THE REVENUE APPEAL IN IT(SS)A N O.135/H/04 (SHRI K. MADHAVA REDDY) IS THAT THE CIT(A) ERRED IN GIVING A RELIEF OF RS.9 LAKHS BY REDUCING THE ADDITION OF RS.14 40 000/- BE ING INTEREST RECEIPTS TO RS.5 40 000/-. 57. THE REVENUE HAS TAKEN ONE MORE GROUND IN IT(SS)A.NO.135/H/2004 IS THAT THE CIT(A) ERRED IN A CCEPTING THE CLAIM THAT CERTAIN PRO NOTES RELATED TO THE CHIT BUSINESS. TH IS IS SAID TO BE A NEW GROUND WHICH HAS BEEN ADMITTED IN VIOLATION OF RULE 46A OF IT RULES. 58. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIALS AVAILABLE ON RECORD ON THE ABOVE TWO GROUNDS. THE ABOVE TWO GROUNDS OF THE REVENUE ARE INTER RELATED AND RELATING TO REDUC ING THE ADDITION OF RS.14 40 000/- TO RS.5 40 000/- AFTER CONSIDERING T HE RS.15 LAKHS PROMISSORY NOTES OUT OF RS.24 LAKHS AS RELATED TO T HE CHIT BUSINESS. AS SEEN FROM THE GROUNDS OF APPEAL RAISED BY THE ASSES SEE IN IT(SS)A.131/H/2004 THE ASSESSEE IS HAVING GRIEVANC E WITH REGARD TO CONFIRMING THE INCOME AT RS.5 40 000/- FROM FINANCE BUSINESS BY THE CIT(A). WHILE ADJUDICATING THIS GROUND RAISED BY T HE ASSESSEE WE HAVE GIVEN DIRECTION TO THE ASSESSING OFFICER TO CONSIDE R PROMISSORY NOTE TO THE EXTENT OF RS.24 LAKHS AS BELONGS TO THE CHIT BUSINE SS. BEING SO THE GROUNDS RAISED BY THE REVENUE HAVE BECOME INFRUCTUO US AND REQUIRES NO ADJUDICATION. ACCORDINGLY THE ABOVE TWO GROUNDS R AISED BY THE REVENUE IT(SS)A NO.67/H/2004 & 11 APPEALS M/S LAKSHMI SAI ENTERPRISES & OTHERS HYDERABAD 30 30 ARE DISMISSED AS INFRUCTUOUS. IN THE RESULT THE REVENUE APPEAL IN IT(SS)A.135/H/2004 IS DISMISSED. 59. IN THE RESULT APPEALS ARE DISPOSED OFF AS F OLLOWS: SL.NO. ASSESSEES APPEAL RESULT REVENUE APPEAL RESULT 1 IT(SS)A.67/H/2004 (M/S LAXMI SREE ENTERPRISES) PARTLY ALLOWED IT(SS)A.76/H/2004 (M/S LAXM I SREE ENTERPRISES) DISMISSED. 2 IT(SS)A.68/H/2004 (M/S AMMA ENTERPRISES) PARTLY ALLOWED IT(SS)A.78/H/2004 (M/S AMMA ENTERPRISES) DISMISSED 3 IT(SS)A.69/H/2004 (M/S SREE ENTERPRISES) PARTLY ALLOWED IT(SS)A.79/H/2004 M/S SREE ENTERPRISES) DISMISSED. 4 IT(SS)A.70/H/2004 (SHRI JESWANT RAO) PARTLY ALLOWED - - 5 IT(SS)A.130/H/2004 (SHRI K. SANJEEVA REDDY) PARTLY ALLOWED - - 6 IT(SS)A.131/H/2004 (SHRI K. MADHAVA REDDY) PARTLY ALLOWED IT(SS)A.135/H/2004 (SHRI K. MADHAVA REDDY) DISMISSED 7 IT(SS)A.128 /H/2004 (SHRI M. BHIMA RAO) PARTLY ALLOWED - - 8 IT(SS)A.77/H/2004 (D. RAJENDRA RAO) DISMISSED ORDER PRONOUNCED IN THE OPEN COURT 31.3.20 11 SD/- SD/- N.R.S. GANESAN CHANDRA POOJARI JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 31 ST MARCH 2011 COPY FORWARDED TO: 1. SHRI S. RAMA RAO ADVOCATE 103 INDIRADEVI NILA YAM 3-6-542 ST.7 HIMAYATNAGAR HYD.29 2. THE ACIT CIRCLE 5 HYDERABAD 3. CIT(A)-I HYDERABAD. 4. CIT HYDERABAD 5. THE D.R. ITAT HYDERABAD. NP