ACIT (CENTRAL) 1 INDORE , INDORE vs. SHRI KANTILAL KATARIA, RATLAM

आदेश / O R D E R

PER MANISH BORAD: The above captioned cross appeals for AY 2011-12 and

appeal for AY 2012-13 at the instance of Revenue are directed

against the respective orders of Ld. Commissioner of Income

Tax(Appeals)-II, (in short ‘CIT(A)’), Indore dated 15.01.2018 &

29.08.2018 which are arising out of the orders of DCIT –(Central)

dated 28.02.2014.

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

profit against the unexplained investments ofthe appellant determined by the ld. CIT(A) himself.

1(e). That, without prejudice to the above, the learned CIT(A) grossly erred in not giving a specific finding in his Order for giving credit to the appellant at Rs.75,31,785/- in respect of income already offered by him on account of net profit from unaccounted business of scrap, in his return of income, filed post search.

2(a). That, the learned CIT (A) grossly erred, both on facts and in law, in estimating the investment of initial capital in the unaccounted scrap business at Rs.55,28,966/- as against the same claimed by the appellant at Rs.24,68,215/- thereby resulting into confirmation of an addition ofRs.31,11,201/- in the appellant's income on account of unexplained purchases.

2(b). That, without prejudice to the above, the estimation of investment of initial capital in unaccounted business of scrap at 50% of the unaccounted purchases, as made by the ld. CIT(A), is quite excessive and arbitrary without considering the material fact that the appellant had been carrying out his unaccounted business in cyclic manner and barring initial investment of Rs.24,68,215/- from the undisclosed sources, the subsequent purchases were made by him out of unaccounted sales.

3(a). That, the learned CIT(A) grossly erred, both on facts and in law, in confirming the addition of Rs.3,00,00,000/- made by the AO in the appellant's income on account of alleged advance payment by the appellant to one Mr. Rahul by invoking provisions of s. 69 of the Income-Tax Act, 1961 without properly considering and appreciating the explanation of the appellant furnished along with documentary evidences.

3(b). That, without prejudice to the above, the learned CIT (A) grossly erred, both on facts and in law, in not accepting the explanation of the appellant that factually a sum of Rs.30,00,000/- only was advanced by him to Mr. Rahul.

3(c). That, without prejudice to the above, the learned CIT (A) grossly erred, both on facts and in law, in not allowing the benefit of telescoping to the appellant in respect of advances made to Mr. Rahul against the income derived by the appellant from carrying out unrecorded trading transactions of scrap and granules. 3

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

3(d). That, without prejudice to the above, the learned CIT(A) grossly erred, both on facts and in law, in not accepting the appellant's plea that the loan of Rs.30,00,000/- given by him to Mr. Rahul was received back in the relevant year itself.

4(a). That, the learned CIT(A) grossly erred, both on facts and in law, in confirming the addition of Rs.9,00,000/- made by the AO in the appellant's income merely on guess work, surmises and conjectures on account of alleged receipt of interest on advance to Mr. Rahul.

4(b). That, without prejudice to the above, the learned CIT (A) grossly erred, both on facts and in law, in not accepting the explanation of the appellant that factually a sum of Rs.30,00,000/- only was advanced by the appellant to Mr. Rahul and therefore, there was no justification for assuming a higher amount of receipt of interest in the hands of the appellant by misconstruing the facts of the case and thereby assuming a higher amount of advance to Mr. Rahul.

4(c). That, without prejudice to the above, the learned CIT(A) grossly erred, both on facts and in law, in not considering the material fact that the entire undisclosed income of the appellant for the relevant previous year was duly covered by way of additional income shown by the appellant himself in the return of income furnished in response to Notice u/s. 153A and therefore, there was no necessity for

6(a). That, the learned CIT(A) grossly erred, both on facts and in law, in partially confirming the addition to the extent of Rs.36, 1 0,000/- out of the total addition of Rs.7,83,60,000/- made by the AO in the appellant's income, on account of loans and advances, by invoking provisions of s. 69 of the Income-Tax Act, 1961.

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

6(b). That, without prejudice to the above, the learned CIT(A) grossly erred, both on facts and in law, in giving set-off to the extent of Rs.l,95,40,000/- only out of the unexplained loans and advances made at Rs.2,31,5O,000/- without considering and appreciating the material fact that the appellant had disclosed additional income to the extent of Rs.2,60,00,000/-, over and above the additional income of Rs.l,OO,OO,OOO/- surrendered on account of unaccounted business of scrap and investment therein, and the entire additional income of Rs.2,60,00,000/- was available to the appellant for explaining the sources of unexplained loans and advances of Rs.2,31,50,000/-.

7(a). That, the learned CIT(A) grossly erred, both on facts and in law, in giving a direction to the AO to recalculate the amount of interest on the confirmed addition of Rs.2,31 ,95,000/- on account of loans and advances. 7(b). That, without prejudice to the above, the learned CIT(A) grossly erred, both on facts and in law, in not considering and appreciating the explanation of the appellant that a substantial amount of loans and advances actually given by the appellant had got refunded during the previous year itself and therefore, there was no justification for estimation of interest income for the whole year.

8.That, the learned CIT(A), while adjudicating the ground nos. 10(a) to 10(d) of the appellant, grossly erred, both on facts and in law, in not considering the material fact that the appellant had already shown an additional income ofRs.2,60,00,000/in his return of income filed, post search, for the relevant assessment year, and all the undisclosed income, including that from interest on loans and advances, were duly covered from such additional income and therefore, there was no justification for making any separate estimation or addition on account of unrecorded interest on loans and advances.

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

2.On the facts and in the circumstances of the cases, the Ld. c/T(Appeals) erred in restricting the addition to Rs. 31,11,201/_ in place of addition made by AO of Rs. 1,10,57,932/_ on account of unexplained expenditure u/s 69C on the basis of incriminating documents found and seized from the assessee's premise.

4.On the facts and in the circumstances of the cases, the Ld. CIT(Appeals) erred in deleting the addition of Rs. 12,60,000/- made by AO on account of sale of land on the basis of incriminating documents found & seized from the assessee's premises.

5.On the facts and in the circumstances of the cases, the Ld. C/T(Appeals) erred in deleting the addition of Rs. 6,90,00,000/_ out of the addition of Rs. 7,83,60,000/_ made by the AO on account of unexplained loans & advanced on the basis of incriminating documents found & seized from the assessee's premise.

6.On the facts and in the circumstances of the cases, the Ld. C/T(Appeals) erred in restricting the addition of interest made on account of unaccounted loans & advanced and directing to re- calculate up on the account of Rs. 2,31,95,000/_ as against Rs.10,43,60,000/-

2.On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs.10,27,036/- made on account of disallowance of business loss in the light of the fact that the assessee failed to substantiate such business losses with any documentary evidences. 6

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

3.On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing the set off of confirmed addition of Rs.36,00,000/- & Rs.27,83,400/- made on account of interest on unaccounted loan to Rahulji & interest on other unaccounted loans and advances respectively, against the additional income of Rs.2,40,00,000/- offered by the assessee in the return for A.Y.2012-13.

We will first take up the cross appeals pertaining to AY 2011-12

that the assessee is an individual and regularly assessed to

Income-Tax for last many years. The assessee belongs to Kataria

Group of Ratlam. Source of income is from salary and carrying

out business of steel wires & scrap and plastic granules & scrap

under the name and style of sole proprietorship concern 'M/s.

D.P. Industries'. Search & Seizure Operations u/s. 132 of the

Income-Tax Act, 1961 ( in short “The Act” )were carried out at

the residential premises of the assessee and also on various

other premises of the Kataria Group on 07-09-2011.During the

course of the search various documents including diaries and

loose papers were seized .In view of the seized diaries and other

discrepancies noticed during the course of the search, the

assessee, initially, through his nephew Shri Sunil Kataria, had

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

made a disclosure of an additional income of Rs.8,75,00,000/-

vide a statement recorded under s. 132(4) of the Income-Tax Act,

1961. At the time of the search, Shri Sunil Kataria had admitted

an overall additional income of Rs.26 Crores on behalf of the

entire Kataria Group which was inclusive of disclosure of

additional income of Rs.8.75 crores made on behalf of the

assessee. The surrender was made subject to verification of the

seized documents. Subsequently, after obtaining the copies of

the seized material, Shri Sunil Kataria, vide letter dated 20-03-

2012, while maintaining the overall amount of surrender on

behalf of the group at Rs.26 crores, revised the amount of

surrender on behalf of the assessee, at Rs.6.00 crores (Rs.3.60

cr for AY 2011-12 and Rs.2.40cr for AY 2012-13) vide letter

dated 20-03-2012

for the assessment year under consideration on 31-03-2012,

under s.139(4), declaring an income of Rs.3,79,93,930/- duly

incorporating the undisclosed income of Rs.3.60cr. The

remaining surrendered income of Rs.2.40cr was considered and

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

shown in return of income for the subsequent assessment year

i.e. A.Y. 2012-13.In response to the Notice u/s. 153A, the

assessee furnished his Return of Income on 06-08-2013

declaring the same income as was declared by him in his

original return of income furnished under s.139(4) of the Act.

The case of the assessee was selected for scrutiny and Notices

u/s. 143(2) & 142(1) along with questionnaires issued from time

to time duly served upon the assessee

seized material and the element of income alleged to have been

earned by the assessee. Detailed submissions were filed along

with various documentary evidences. After considering the same

the income of the assessee for A.Y. 2011-12 assessed at Rs.

25,03,84,440/- in the following manners:

Income shown in the return Rs.3,79,93,930/- Add:(1) Trading profit in scrap and granules Rs.8,30,89,378/- Less already offered by the Rs.7,30,89,378/- assessee Rs.1,00,00,000 as per para 1.7 Add:(2) Unexplained expenditure u/s Rs.1,10,57,932/- 69C as per para -11.8 Add:(3) Loan advanced to Rahulji as Rs.3,00,00,000/- 9

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

per para -12.6 Add:(4) Interest on above loans per Rs.9,00,000/- para-12.6 Add:(5) Unexplained investment in Rs.52,00,000/- land as per para -13.3 Add:(6) Profit on sale of above land as Rs.12,60,000/- per para-13.3 Add:(7) Loans and advances (as per para-14.4) Rs.10,43,60,000 Less: Already offered by the Rs. 7,83,60,000/- assessee Rs.2,60,00,000/- Add:(8) Interest on above as per para- Rs.1,25,23,200/- 14.5 Total Assessed income Rs.25,03,84,440/- Rounded off Rs. 25,03,84,440/-

partly succeeded and now both assessee and revenue are in

appeal before this Tribunal.

assessee and Ground No. 1 of the Department relating to

estimation of net profit from Trading in Scraps and Granules

and the Ground No. 1 of the Revenue are pertaining to the action

of the Ld. CIT(A) in partially confirming the addition to the extent

of Rs.1,35,36,828/- out of the total addition of Rs.7,30,89,378/-

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

made by the AO on account of alleged profit on unrecorded sales

of scraps.

various diaries inventorized as Annexure A-1 to A-8 of

Panchnama dated 07-09-2011, Ld. AO found that the assessee

had carried out unrecorded business transactions of purchase

and sale of scrap. During the course of the assessment

proceedings, the assessee was required to make his explanation

on the seized material. The assessee submitted that the diary

marked and inventorized as A-8 was containing the unrecorded

transactions of purchases whereas the remaining diaries marked

and inventorized as A-1 to A-7 were containing the unrecorded

transactions of sales carried out by the assessee. As per the

diaries, the total unrecorded sales and unrecorded purchases, of

the assessee, got worked out respectively at Rs.9,41,47,310/-

and Rs.1,10,57,932/-. A copy of the working (subject to be

extrapolation with two zeros) has been submitted by the

assessee in his Paper Book at Page No. 100 to 114.

Undisputedly, the AO has also accepted the working of the

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

purchases and sales as submitted by the assessee before him

without any interference and resultantly, while making the

impugned addition, the AO has relied upon such working only.

Finally, based upon the jottings made in the diaries, the AO

worked out the net profit of the assessee from carrying out the

unaccounted business of scrap at Rs.8,30,89,378/- [i.e.

unrecorded sales of Rs.9,41,47,310 (–) unrecorded purchases of

Rs.1,10,57,932]. Since, for the assessment year under

consideration, the assessee had disclosed an additional income

of Rs.3,60,00,000/-, out of which an additional income of

Rs.1,00,00,000/- was declared by him towards undisclosed

trading profit in scrap business, Ld. AO granted the credit such

additional income of Rs.1,00,00,000/- and made addition of

Rs.7,30,89,378/- in the assessee’s income under the head

‘Trading profit in scrap and granules’.

assessee preferred an appeal before the Ld. CIT(A). Before the

Ld. CIT(A), the key submission of the assessee was that the Ld.

AO was not correct in his approach in presuming that as against

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

the unaccounted sales of scrap aggregating to Rs. 9,41,47,310/-,

there were purchases to the extent of Rs. 1,10,57,932/- only.

According to the assessee, the factual position is that the

amount of purchase was much higher than that considered by

the AO for the reason that the entire records of unaccounted

purchases were not found and seized during the course of the

search and majority of the records relating to the purchases had

got destroyed much prior to the date of the search. In support of

such contention, during the course of the appellate proceedings

before the Ld. CIT(A), the assessee furnished quantitative details

of the purchases and sales of scraps as found jotted down in all

the seized diaries inventorized as Annexure A-1 to Annexure A-8.

A copy of such quantitative details are also furnished before us.

From such details, it is demonstrated that as per the seized

records, the quantity of sales is of 23,994.897 M.T. whereas,

quantity of purchases is only of 2510.330 M.T. and therefore, it

cannot be inferred that the unaccounted purchases made by the

assessee was only to the extent of the seized records.

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

para (5.5) at page no. 48 of the impugned order, held that the

entire unaccounted purchases were not found jotted down in the

seized diaries. Thereafter, the Ld. CIT(A) held that in such case,

the Ld. AO was not justified in working out the net profit of the

assessee at Rs.8,30,89,378/- and Ld. AO ought to have adopted

some logical and reasonable approach in estimating the net

profit from sale of Rs.9.41 crores. Thereafter, by granting partial

relief to the assessee, the Ld. CIT(A) determined the Net Profit on

the sale of scrap by applying a flat N.P. rate of 25%. Accordingly,

on the total unaccounted sales of Rs. 9,41,47,310/-, the Ld.

CIT(A) determined the Net Profit of the assessee at Rs.

2,35,36,828/-, @25%, and thereafter, by granting the credit for

the income of Rs. 1,00,00,000/- already offered by the assessee

in his return of income furnished under s. 153A of the Act,

confirmed the addition to the extent of Rs. 1,35,36,828/-, which

resulted into a relief to the extent of Rs. 5,95,52,550/-.

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

in appeal whereas against the relief granted, the Revenue is in

appeal.

CIT(DR) ) vehemently argued supporting the observation of

Learned AO and the finding of Ld.CIT(A) given in favor of

Revenue on this issue of estimating profit from unaccounted

scrap trading business.

synopsis. The relevant portion of such synopsis is being

reproduced as under:

Key Points of Assessee’s Submission and Relevant Pages of Paper Book: S. Submission in Brief Relevant Remarks No. Pages of Paper Book 1 Transactions were carried out in 40 i) Even before the AO [kindly refer two previous years relevant to A.Y. [Statement Para (11.4)(3.1) of AO’s Order], it 2011-12 and A.Y. 2012-13 recorded was claimed that the unaccounted during the trading transactions were carried Search] out in two assessment years. ii) The nephew of the assessee 100 to 114 namely Shri Sunil Kataria (PB [Excel Page No. 40), in his statement Sheet] recorded u/s. 132(4), categorically stated such fact. iii) Diaries inventorized as A-1 to A-8 also demonstrate clearly that the transactions pertain to two financial years.

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

iv) Excel Sheet summarizing the transactions of the diaries placed at page no. 100 to 114. On a perusal of Page No. 102 of the Paper Book, it shall be observed that in the Diary No. A-1, transactions are bearing the dates such as ‘1.04’ i.e. 1st April and again in the Diary No. PAS-2, at page no. 111, the date has been mentioned as ‘1.04’ i.e. 1st April. It is submitted that the first date falls in the financial year 2010-11 whereas the second date falls in the financial year 2011-12. 2 Entire suppressed sales cannot be 115 to 117 CIT vs. Balchand Ajit Kumar regarded as income. [Copy of the (2003) 263 ITR 610 (MP) Judgment of the Hon’ble MP High Court]

3 Seized diaries were not complete - Unaccounted Sales of set of record of transactions of Rs.9,41,47,310/- and purchases and sales of scrap and Unaccounted Purchases of granules. All transactions of Rs.1,10,57,932/- found in diaries. unaccounted sales were found in Net Profit of Rs.8,30,89,378/- diaries but records of all purchases determined by the AO which is not found. patently wrong, absurd and arbitrary. Refer Para (11.1) on pg. 11 & para (11.7) on pg. 15 of AO’s Order.

4 On a perusal of diaries A-1 to A-8, 193 As per the seized material, Diary quantity of purchases in purchase [Summary A-8, the purchase quantity is only diary is much less than quantity of of 2510.330 M.T. whereas as per the sales stated in various sales quantities other seized diaries viz. A-1 to A- diaries. As per the seized records, of 7, the total quantity of sales is the purchase quantity was to the unrecorded 23994.897 M.T. without extent of 2510.330 M.T. only as purchases purchases, there could not have against the sales quantity of and been any sales. 23994.897 M.T. unrecorded sales] 5 In a scrap business, normally the - The AO has estimated the net rate of profit ranges between 5% to profit at 88.25% and the CIT(A) 10%. The estimation of net profit by has estimated the same at 25%. the AO and CIT(A) is arbitrary The assessee himself has shown net profit of 12.25% in two years. 6 On the aggregate turnover of 68 Even if the initial capital Rs.9,41,47,310/-, the assessee investment in unrecorded has already offered undisclosed business at Rs.24,68,215/- is income of Rs.1,40,00,000/- in two excluded, there would remain an assessment years i.e. undisclosed trading income of

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

Rs.1,00,00,000/- in A.Y. 2011-12 Rs.1,15,31,785/- which would and Rs.40,00,000/- in A.Y. 2012- result in net profit of 12.25% 13. The undisclosed income of shown by the assessee himself. Rs.1,40,00,000/- includes the initial capital investment of Rs.24,68,215/-.

assessee on this issue made before the CIT(A) which is placed at

page no. 7 to 12 of the Paper Book.

assessee on suppressed sales, a reasonable net profit rate must

be made” reliance placed on following citations :-.

i) CIT vs. Balchand Ajit Kumar (2003) 263 ITR 610 (MP) ii) Manmohan Sadani vs. CIT (2008) 304 ITR 0052 (MP) iii) Eagle Seeds & Biotech Ltd. vs. ACIT (2006) 102 TTJ 1065 (IndoreTrib.) iv) CIT vs. President Industries (2002) 258 ITR 654 (GujHC) v) Kulwant Singh vs. DCIT (2010) 134 TTJ 129 (Del.)”

before us ,duly considered the facts and circumstances,

carefully gone through the orders of lower authorities and

written and oral submissions made from both the sides. We find

that undisputedly, during the course of the search at the

premises of the assessee on 07-09-2011, certain diaries 17

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

inventorized as A-1 to A-8 were found and seized by the search

party. It is also an undisputed fact that in these diaries various

transactions of purchases and sales of scrap were noted down

which were not found recorded in the regular books of account

maintained by the assessee.

assessee and the Revenue that out of the aforesaid eight pocket

diaries, one pocket diary inventorized as A-8 was containing the

transactions relating to unrecorded purchases carried out by the

assessee, whereas, in the remaining seven pocket diaries

inventorized as A-1 to A-7, the transactions of unrecorded sales

were jotted down. The quantum of purchases and sales as per

these seized diaries respectively at Rs. 1,10,57,932/- and Rs.

9,41,47,310/- have not been disputed by either of the parties.

assessee was that the transactions jotted down in these diaries

pertain to two financial years relevant to A.Y. 2011-12 and A.Y.

2012-13. During the course of the hearing before us, the A.R. of

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

the assessee, reiterated his arguments by making a reference of

the excel sheets of purchases and sales prepared on the basis of

the seized diaries. However, even before us, Ld. counsel for the

assessee (in short Ld. AR) failed to demonstrate with any positive

evidence that the jottings made in these diaries pertain to two

financial years. Since, the assessee himself is claiming that he

had commenced the unaccounted business of scrap trading

during the financial year relevant to A.Y. 2011-12 only and

further since, from the seized diaries the assessee has failed to

demonstrate that these transactions were also carried out by

him during the subsequent financial year too, we find absolutely

no infirmity in the views taken by the authorities below that the

transactions of unrecorded trading of scrap were carried out by

the assessee during the financial year relevant to A.Y. 2011-12

only and consequently, the entire income arising from carrying

out such unrecorded transactions is liable to be taxed in the

hands of the assessee for the A.Y. 2011-12 only. Accordingly, the

Ground No. 1(b) of the assessee is dismissed.

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

income from the undisclosed and unrecorded trading

transactions in scrap carried out by the assessee, we find that as

per the seized material, being the pocket diaries inventorized as

A-1 to A-7, the unrecorded sales works out to be at Rs.

9,41,47,310/- only and as against these unrecorded sales, the

unrecorded purchases as per seized diary A-8 works out to be at

Rs. 1,10,57,932/-. So with the application of the simple

arithmetic, the total undisclosed net profit from the trading

activities works out to be at Rs. 8,30,89,378/- only as worked

out by the assessing officer. But, before making such plain

arithmetical exercise, one has to see that whether or not the

unrecorded purchases and unrecorded sales fully correspond

with each other. In the instant case, we find that it is not so.

purchase quantity of only 2510.330 Metric Ton of scrap whereas

the seized sales records reveal the sales quantity of 23994.897

Metric Ton. That these working of the quantities of purchases

and sales have not been disputed by the Revenue. It is well 20

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

evident that with the purchase of meager 2510.330 MT, huge

sales of 23994.897 MT cannot be effected and therefore, it leads

to only one inference that the entire unrecorded purchase

records of the assessee could not be found and seized during the

course of the search. In these circumstances, we fully concur

with the findings of the CIT(A) that the assessee’s purchase

record were not fully recovered and therefore, it could not be

made the basis for determining the net profit of the assessee

from carrying out the unrecorded trading business of scrap. We

find force in the contention of the Ld. AR that the entire

suppressed sales cannot be regarded as an income of the

assessee but only the net profit element embedded in such

suppressed sales has to be estimated as undisclosed income of

the assessee. For such proposition, we place reliance on the

judgement of Hon’ble High Court of Madhya Pradesh in the case

of CIT vs. Balchand Ajit Kumar (2003) 263 ITR 0610 (MP) in

which their Lordships at para (6) was pleased to observe as

under:

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

“5. On appreciating the rival submissions raised at the Bar, we have carefully perused the order passed by the Commissioner of Income-tax (Appeals) and also that of the Tribunal. It is not disputed that the undisclosed income was Rs. 2,57,000. The sole question that arises for consideration is whether the entire income has to be treated as profit or there should be adoption of a method of net profit income. In the case of CIT v. President Industries [2002] 258 ITR 654, the High Court of Gujarat in a similar matter came to hold as under (page 655) :

"Having perused the assessment order made by the Assessing Officer, the order made by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal, we are satisfied that the Tribunal was justified in rejecting the application under Section 256(1). It cannot be a matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represented the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that investment by way of incurring the cost in acquiring the goods which have been sold has been made by the assessee and that has also not been disclosed. In the absence of such finding of fact the question whether the entire sum of undisclosed sale proceeds can be treated as income of the relevant assessment year answers by itself in the negative. The record goes to show that there is no finding nor any material has been referred about the suppression of investment in acquiring the goods which have been found subject of undisclosed sales."

our considered view, the Revenue has no option but to estimate

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

a reasonable net profit on the suppressed sales. We find that in

the return of income furnished for the assessment year under

consideration, u/s. 153A of the Act, the assessee has voluntarily

shown an income of Rs. 1,00,00,000/- on account of

undisclosed income from scrap trading and undisclosed initial

investment in the business of scrap trading respectively at Rs.

75,31,785/- and Rs. 24,68,215/-. Thus, on suppressed sales of

Rs. 9,41,47,310/- the assessee has disclosed net profit of Rs.

75,31,785/- which works out to be 8% only. As against such net

profit rate of 8%, the CIT(A) has estimated the rate of net profit

at 25%. Considering the facts that the assessee has carried out

only a trading business on wholesale basis which was

commenced by him only in the financial year under

consideration and further considering the amount of investment,

rate of return on investment etc. in our view, the estimation of

the net profit rate so made by the CIT(A) at 25% is quite at a

higher side. In all the fairness to both the parties , we restrict

the estimation of net profit at 10% of the undisclosed sales.

Before us, the assessee has also taken two separate grounds

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

bearing nos. 1(c) and 1(d) for allowing him the benefit of

telescoping of the total undisclosed income shown in the return

against the net undisclosed income/investment finally

determined. We are of the considered view that an assessee is

eligible for claim of set-off of the undisclosed income voluntarily

shown by himself in the return of income filed u/s. 153A against

any undisclosed income/undisclosed investment, finally

determined. Accordingly, the AO is directed to work out the net

profit at the rate of 10% on the unaccounted sales of Rs.

9,41,47,310/- i.e. at Rs.94,14,731/- and after giving due benefit

of telescoping of the undisclosed income of Rs. 3,60,00,000/-

already shown by the assessee in his return of income (other

than those undisclosed income for which a separate specific

claim for set-off is made by the assessee), re-compute the total

income of the assessee. Accordingly, the Ground No. 1 of the

Revenue is dismissed and Ground Nos. 1(a), 1(c) and 1(e) of the

assessee are Partly Allowed and Ground No. 1(d) of the assessee

is fully allowed.

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

the Department – Unexplained Expenditure being Purchase of

Scraps and Granuels – Rs.1,10,57,932/-

to 1(e) taken by the assessee and Ground No. 1 taken by the

Revenue. During the course of the assessment proceedings, from

seized diary Ld. AO found that during the relevant year, the

assessee had carried out unrecorded transactions of

purchases/sale of scrap. Ld. AO treated the difference between

the aforesaid sales and purchases (sale Rs.9,41,47,310/- less

purchase Rs.1,10,57,932/-) as the profit of the assessee from

unaccounted scrap business and made an addition of

Rs.7,30,89,378/- in the assessee’s income for the A.Y. 2011-12.

Further, the AO also made an addition to the tune of

Rs.1,10,57,932/- on account of aforesaid unaccounted

purchases, by invoking the provisions of s.69C of the Act,

treating the same as unexplained expenditure of the assessee for

the A.Y. 2011-12. The AO also held that it is not allowable as

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

deduction under any head of income as per proviso to section

69C of the Act.

The Ld. CIT(A) noted that there is a contradiction in the

approach of the AO in treating the purchases of

Rs.1,10,57,932/- as unexplained expenditure u/s. 69C of the

Act and by allowing a credit thereof from the unaccounted sales

of Rs.9,41,47,310/-. The Ld. CIT(A) further stated that the

contention of the assessee is found reasonable to the effect that

purchases found noted in the diary can be said to be unrecorded

but the sources thereof cannot be considered as fully

unexplained. The Ld. CIT(A) also stated that the entire

purchases have not been made in a single day or single instance

but they are found to be made on various dates and in various

months in a cyclic manner and in small amounts. The assessee

has been found to have recorded the corresponding sales in the

same manner as purchases. The Ld. CIT(A) stated that barring

initial investment, the assessee was not required to make

investment in subsequent purchases. The Ld. CIT(A) further

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

stated that the assessee has not furnished any basis for initial

investment and thus, the initial investment of Rs.24,68,215/-

estimated by the assessee was found to be on a lower side.

Accordingly, the Ld. CIT(A) estimated the initial capital of the

assessee at one half of impugned purchase amount i.e. at

Rs.55,28,966/- as against the same shown by the assessee at

Rs.24,68,215/-. Finally, the Ld. CIT(A) granted a relief of

Rs.79,46,731/- and confirmed an addition of Rs.31,11,201/- in

the assessee’s income.

as well as the Revenue have preferred cross-appeals before this

Tribunal on the issue.

CIT(DR) ) vehemently argued supporting the observation of

Learned AO and the finding of Ld.CIT(A) given in favor of

Revenue on this issue of estimating profit from unaccounted

scrap trading business.

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

synopsis. The relevant portion of such synopsis is being

reproduced as under:

Key Points of Assessee’s Submission and Relevant Pages of Paper Book: S. Submission in Brief Relevant Remarks No. Pages of Paper Book 1 Once the assessee is found to - - have earned any unrecorded revenue and simultaneously has also been found to have incurred any unrecorded expenditure to earn such unrecorded income, then, first of all, such unrecorded expenditure cannot be considered as unexplained expenditure under s. 69C and, secondly, a set off of such unrecorded expenditure has to be given against the unrecorded revenue for determining the taxable income of the assessee 2 The transactions of both - Although the transactions of purchases as well as sales were purchases remained unrecorded, made by the assessee in different but the sources thereof were very trenches of petty amounts and well explained before the AO that too in a cyclic manner. having been made out of the cash realized from unrecorded sales transactions from time to time. 3 The assessee himself had offered Part-II of Besides offering an income of an additional income of the Rs.24,68,215/- towards initial Rs.24,68,215/- on account of Synopsis capital investment in unrecorded initial capital investment in the above business, the assessee has also unrecorded business. offered income aggregating to Rs.1,15,31,785/- on account of net profit earned from carrying out unrecorded trading business. The income so earned during the year and duly offered for taxation was available with the assessee for making investment in purchases. Since, the income so earned for trading has already been taxed separately, the corresponding investment made out of such income cannot again be added as it would tantamount

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

to making of the same addition twice. 4 Over and above the income of - The remaining additional income Rs.24,68,215/- and of Rs.2,60,00,000/- which was Rs.75,31,785/-, aggregating to utilized by the assessee in Rs.1,00,00,000/-, the assessee making unrecorded investment in had also offered an additional loans and advances was also income to the extent of available with the assessee in the Rs.2,60,00,000/- in his return of initial days of the previous year income filed under s. 153A. for making investment in unrecorded purchases. 5 The assessee is squarely eligible - - for claim of telescoping benefit in respect of the total undisclosed income of Rs.3,60,00,000/- for the assessment year under consideration, on the basis of undisclosed income shown in the return against the unexplained investment, if any, found made in making the subject purchases and, therefore, no separate addition on this count was warranted.

G. Our Detailed Submissions before the Hon’ble Bench: The detailed submission of the assessee on the issue, which was also made before the CIT(A) is placed at page no. 12 to 15 of the Paper Book. The same has also been reproduced by the CIT(A) at page no. 15 to 18 of the impugned Order while adjudicating the Ground Nos. 4(a), 4(b) & 4(c) raised by the assessee. The assessee wish to place reliance on such detailed written submission made before the CIT(A). H. Legal Authorities on which Assessee wish to rely: Reliance is placed on the following judicial pronouncements: (i) CIT (Central) Cochin vs. P.D. Abraham @ Appachan (2012) 252 CTR (Ker) 407 [Copy of judgment enclosed as Annexure A-9.01 (PB Page No. 118 to 130)] (ii) CIT vs. Tips Industries Pvt. Ltd. (2010) 321 ITR 0154 (Bom.) [Copy of judgment enclosed as Annexure A-9.02 (PB Page No. 131 to 140)]

case and carefully gone through the AO’s order, the Ld. CIT(A)’s

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

Order, various relevant seized documents, written and oral

submissions made from both the sides.

entire purchases aggregating to a sum of Rs.1,10,57,932/- as

found recorded in one of the seized diaries inventorized as A-8,

as unexplained expenditure of the assessee. We also find that

even the Ld. CIT(A) while determining the quantum of

undisclosed investment in the initial capital of the scrap

business has taken into consideration the aforesaid amount of

purchase only. However, while adjudicating the Ground Nos. 1(a)

to 1(e) of the assessee and Ground No. 1 of the Revenue, we have

already held that the aggregate amount of undisclosed

purchases of the assessee for the year under consideration was

much more than that recorded in the diary inventorized as A-8.

In such circumstances, we are of the view that it would not be

correct approach to determine the quantum of initial investment

in the scrap business of the assessee only on the basis of the

aforesaid sum of Rs.1,10,57,932/-. We find that both the

authorities below have undisputedly determined the quantum of 30

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

unrecorded sales at Rs.9,30,89,378/- to which the assessee has

also agreed, then in our considered view, the initial capital

investment in the undisclosed trading business of the scrap

ought to be determined on the basis of the aforesaid unrecorded

annual sales of Rs.9,30,89,378/-. From the excel sheets, drawn

by the assessee on the basis of the seized diaries which have

also been accepted by the AO, we find that the assessee has

made both the purchases and sales in multiple trenches, thus,

the contention of the Ld. AR is worth accepting that the

undisclosed trading transactions were carried out by him not in

one go but in a cyclic manner. Accordingly, only for making the

first few purchases, the assessee could be said to have made

investment in his business and for making the subsequent

purchases, the sales proceeds realized from the initial purchases

were available for him for making further purchases and so on.

Considering the entire facts and the pattern of purchase and

sales as recorded in the seized diaries, we are of the considered

view that it would be fair and reasonable to estimate that the

assessee had made initial investment for carrying out

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

undisclosed trading business of scrap equivalent to a half

month’s sales of the entire sales made during the period under

consideration. Accordingly, in our considered view, the

undisclosed investment of the assessee in the initial capital of

the business should be computed at 1/24th of the total annual

sales of Rs.9,30,89,378/- found recorded in the seized diaries

which works out to be at Rs.38,78,724/- as against the same

determined by the Ld. CIT(A) at Rs.55,28,966/-. We also direct

the Ld. AO that assessee would be eligible to set off of this

amount of Rs.38,78,724/- against the total income of

Rs.3,60,00,000/- surrendered in the return of income furnished

under s.153A of the Act. However, we will deal with the

telescoping benefit/set off available to assessee against the

surrendered income of Rs.3.60 cr offered in the income tax

returns, available to the assessee for the additions to be

confirmed in the hands of assessee, after dealing with remaining

issues raised before us. Accordingly, the Ground Nos. 2(a) & 2(b)

of the assessee are Partly Allowed and Ground No. 2 of the

Revenue is dismissed.

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

Ground Nos. 3(a), 3(b), 3(c) &3(d) of the Assessee – Loans

Advanced to Mr. Rahul – Rs.3,00,00,000/- AND Ground Nos.

4(a), 4(b) & 4(c) of the assessee – Estimated Interest on Loans to

Mr. Rahul – Rs.9,00,000/-

an addition of Rs.3,00,00,000/- made by the AO on account of

alleged advance payment by the assessee to one Mr. Rahul by

invoking the provisions of s.69 of the Act. Further, the ground

nos. 4(a) to 4(c) of the assessee are concerned with estimation of

receipt of interest of Rs.9,00,000/- on aforesaid advance to Mr.

Rahul.

records are that during the course of search and seizure

operations carried out at the residential premises of the assessee

i.e. at 62-63, Choumukhi Pool, Ratlam, certain loose papers

were found and seized vide Annexure LPS-12, Page no. 1 to 52 of

the Panchnama dated 07-09-2011. As per the AO, these loose

papers were correspondence between the assessee and his son

Shri Hemant Kataria in their own respective handwritings. 33

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

During the course of the assessment proceedings, the assessee

was required to make his explanation on the subject seized

material. It was submitted before the AO that the loose papers

marked and inventorized as LPS-12 were containing the notings

related to planning, projections, purchase orders, details of

movable and immovable properties held by the family members

of the assessee and other correspondences which is evident from

the para (12.1) of the AO’s Order itself. Subsequently, the AO,

vide questionnaire dated 25-09-2013, required the assessee to

explain the contents of page no. 50, LPS-12 containing reference

of giving a loan of Rs.300 Lakhs to some Shri Rahul Ji. In

response to the same, the assessee, vide his counsel’s letter

dated 25-01-2014, made an explanation in respect of the subject

loose paper. The reply of the assessee on the subject issue has

been reproduced by the AO at para 12.4 of the assessment

order.

acceptable as the same is contradictory with his earlier

submission dated 20.3.2012, filed before the Investigation Wing, 34

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

in which he had submitted that this was only a simple letter and

there was some doubt between two brothers but now, the

assessee has come with a new story that the amount was only

Rs.29,90,000/- but not Rs.3,00,00,000/-. Ld. AO further stated

that as per evidence available on record, the real fact is that

Rs.3,00,00,000/- was given by the assessee to Shri Rahulji from

his undisclosed income. Ld. AO also noted that the said letter

was written by Shri Hemant Kataria to his father Shri Kantilal

Kataria, i.e. the assessee on 24/12/2010, it will be assumed

that the assessee has advanced this amount on or before

24/12/2010. Accordingly, the AO made an addition of

Rs.3,00,00,000/- in the hands of the assessee as unexplained

investment in the form of loans and advances to Shri Rahul ji by

invoking the provisions of section 69 of the Act. The AO further

made an observation to the effect that since the assessee has not

furnished any proof regarding receiving back the amount of

Rs.3,00,00,000/-, interest will also be estimated @12%.

Accordingly, the AO estimated receipt of interest @12% p.a. on

the aforesaid unexplained investment of Rs.3,00,00,000/- i.e. at

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

Rs.9,00,000/- and Rs.36,00,000/- respectively for the previous

year relevant to A.Y. 2011-12 and A.Y. 2012-13 and added the

same to the total income of the assessee.

The Ld. CIT(A), at para (7.3), stated that during the appeal

proceedings, the assessee was required to file complete details of

the impugned amount advanced to Mr. Rahul and also to

correlate the advancing of loan out of unrecorded income earned

but according to Ld. CIT(A), the assessee could not file any detail

or explanation for the same. The Ld. CIT(A) also stated that

apparently, the incriminating document makes reference to the

amount of 3 crores advanced to Rahul Ji in the past which may

be during earlier years also. Unless it is proved otherwise by the

assessee through concrete evidences, the assessee cannot be

given credit of current undisclosed income to be set-off against

the amount under consideration. The Ld. CIT(A) further observed

that there is no material on record which suggests dates/

modes/ trenches of advances given by the assessee to Mr. Rahul

and therefore, it shall be reasonable to presume that the amount

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

of 3 crores must have been given to Mr. Rahul in earlier years.

Accordingly, the Ld. CIT(A) upheld the action of the AO in

making addition of Rs.3,00,00,000/- and estimated interest in

the assessee’s income for the assessment year under

consideration.

agitated the action of the Ld. CIT(A) in confirming the addition of

Rs.3,00,00,000/- and estimation of interest thereon before this

Tribunal.

[

written synopsis. The relevant portion of such synopsis is being

reproduced as under:

“Key Points of Assessee’s Submission and Relevant Pages of Paper Book: S. Submission in Brief Relevant Remarks No. Pages of Paper Book 1 Page No. 50 of LPS-12 on the 141 At the relevant time, some severe basis of which the AO has made family disputes were undergoing addition is basically a handwritten in the family of the assessee and letter written by one of the three during such time only, Shri sons of the assessee namely Shri Hemant Kataria got some Hemant Kataria enquiring from misleading information that a the assessee about amount of sum of Rs.300 lakhs was given Rs.300L allegedly given to Mr. from the family funds to Mr. Rahul for various projects. Rahul and under such confusion, he asked the assessee for 37

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

furnishing the details. 2 The assessee never made any 149 & 148 Kindly refer LPS-12 Page No. 44 advance of Rs.3,00,00,000/- to which contains a list of the loans Mr. Rahul. The assessee only and advances given to various made advances aggregating to persons. At S. No. 8 & 9 of such Rs.29.90 lakhs to Mr. Rahul list, amounts of Rs.9,90,000/- and Rs.20,00,000/- [extrapolated to ‘00’] have been shown against ‘Rahul Ji’. Even, in the decoded form, such reference was made by concerning son in his subsequent letter to the assessee [kindly refer PB Page No. 148]. 3 Factum of family disputes is 142 to 146 In the said letter, the assessee evident from a copy of letter had requested all his sons to addressed by the assessee on 01- maintain peace and harmony in 12-2009 to all his three major the family and to put all the sons. A copy of such letter was disputes amongst themselves at also seized and inventorized rest. during search as page no. 25 to 29 of LPS-12 4 The then prevailing family dispute, 147 - as asserted above, is also evident from one another letter dated 27- 12-2010 written by yet another son of the assessee, namely Shri Arvind Kataria, to the assessee. Such letter was also seized and inventorized by the search party as Page no. 45 of LPS-12. 5 Shri Hemant Kataria, who had 148 On a perusal of such letter, it written the letter asking for the shall be observed by Your Honour details of Rs.300 lakhs, realized that on such paper too, there are that the total amount of advance two jottings of 20000 and 9900 to Mr. Rahul was of Rs.29.90 under the name of Shri Rahul Ji lakhs only and not of Rs.300 which fully coincides with the lakhs. Such fact is evident from jottings found made at another the subsequent letter written by loose paper seized and Shri Hemant Kataria which has inventorized as page no. 44 of been seized and inventorized as LPS-12 [kindly refer PB Page No. page no. 51 of LPS-12 149]. The figures written at LPS- 12, Page No. 44 [PB Page No. 149], have been decoded by the AO himself by adding two zeros. Accordingly, 20000 and 9900 need to be interpreted respectively at Rs.20,00,000/- and Rs.9,90,000/- aggregating to Rs.29,90,000/- only.

6 All the amounts appearing at page The surrounding loose papers of no. 44 of LPS-12 [PB Page No. the same LPS-12 i.e. page no. 44, 149] have been taken into which have also been relied upon

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

consideration by the AO while and decoded by the AO himself making a separate addition of while making another addition of Rs.7,83,60,000/- on this count in Rs.7,83,60,000/-, are strong the hands of the assessee for the evidence to establish the relevant assessment year assertion of the assessee that he had advanced a sum of Rs.29,90,000/- only to Mr. Rahul and not Rs.3,00,00,000/- as wrongly presumed by the AO 7 Even the CIT(A), at para (7.3), has - Para 7.3, Pg. 57 of CIT(A)’s Order. stated that the amount of 3 crores If according to the CIT(A), the to Rahul Ji may have been loans were given in earlier years, advanced during earlier years then the same cannot be also. As per the CIT(A) himself, regarded as income of the there is no material on record assessee for the assessment year which suggests dates/ modes/ under consideration. It is a trenches of advances given by the settled law that any addition on assessee to Mr. Rahul and account of unexplained therefore, it shall be reasonable to investment can be made only in presume that the amount of 3 that year in which the assessee crores must have been given to was found to have made such Mr. Rahul in earlier years investment. 8 It is a settled law that all the 141 The assessee has demonstrated seized material, found from the that even the contents of loose same location, should be read paper bearing page no. 50 of LPS- conjointly and a loose paper 12 are not correct and therefore, cannot be read into isolation by there cannot be any justification disregarding the other loose for presuming the amount of papers found and seized in the advance to be at Rs.300 lakhs as similar circumstances. Except against the actual amount of loose paper no. 50 of LPS-12, all advance of Rs.29,90,000/- other loose papers of LPS-12 give a clear indication and rather evidence that the agreement amount of advances to Mr. Rahul against purchase of properties in two projects was aggregating to Rs.29,90,000/- only and not of Rs.300 lakhs as presumed by the AO to suit his own convenience. 9 The AO, except banking upon the - The presumption of the AO as only loose paper inventorized as regard to making of advance of page no. 50 of LPS-12, has not Rs.300 lakhs by the assessee to conducted any other enquiry and Mr. Rahul is not corroborated has not brought on record any from any other evidence, no other tangible adverse material. credence deserves to be given to The AO has not conducted any such a bald and patently wrong enquiry from Shri Hemant presumption. Kataria, the author of the letter. The AO has also not enquired either from the assessee or from anyone else about the whereabouts of Mr. Rahul. The AO

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

has also not made any effort for conducting any enquiry from Mr. Rahul either by way of issuance of summons under s.131 or calling information under s.133(6) of the Act. 10 As regard to the source of advance - Over and above such income of of Rs.29,90,000/-, it is submitted Rs.1,00,00,000/-, the assessee that such advances were given by has further disclosed an the assessee in two trenches of additional income of Rs.20,00,000/- and Rs.9,90,000/- Rs.2,60,00,000/- in his return of out of unaccounted receipts of his income for the assessment year unaccounted business of scrap under consideration. Thus, in and granules. In respect of such totality, to assessee, there was business, the assessee had availability of sufficient funds already made necessary disclosure aggregating to Rs.3,60,00,000/- of income of Rs.1,00,00,000/- in and therefore, out of such funds, his return of income for the the investment of Rs.29,90,000/- assessment year under cannot be disbelieved. consideration. Sources are covered by the undisclosed income shown in the return as is apparent from the table given at Part-II above

submission made before the Ld. CIT(A) (placed at page no. 15 to

20 of the Paper Book). The same has also been reproduced by

the Ld. CIT(A) at page no. 54 to 56 of the impugned Order while

adjudicating the Ground Nos. 5(a), 5(b), 5(c)&5(d) raised by the

assessee. Reference was also made to following submissions

made before the Ld. CIT(A):

Key Points of Assessee’s Submission and Relevant Pages of Paper Book: S. Submission in Brief Relevant Remarks No. Pages of Paper Book 1 No iota of evidence found - - suggesting receipt of any interest by the assessee from Mr. Rahul.

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

2 The assessee has only given 149 - advances of Rs.29,90,000/- to Mr. Rahul and such advances were not given as interest bearing but the same were given for making investment in some properties at Khajrana and Shrinagar which is evident from LPS-12 Page no. 44. 3 The assessee himself had shown - - an income of Rs.3,60,00,000/-, in his return of income for the assessment year under consideration, from undisclosed sources and therefore, even if any receipt of interest is assumed, the same is very well covered by the aforesaid income and no further addition was warranted

finding of both the lower authorities and seized documents.

and circumstances of the case, carefully gone through the orders

of both the lower authorities, relevant seized documents and

material placed before us. We find that in the instant case,

Ld.AO has made the entire addition of Rs.3,00,00,000/- as

unexplained investment of the assessee under s.69 of the Act on

account of advance payment made to some Mr. Rahul on the

sole basis of some correspondences exchanged between the

assessee and his son Shri Hemant Kataria. We find that both the

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

authorities below have heavily relied upon one letter dated

25.12.2010 purported to be in the handwriting of Shri Hemant,

(one of the sons of the assessee) and given to the assessee by

which he has required his father to seek the details of the

various advances aggregating to 300 Lacs (written as ‘300L’), for

various projects. We find that except this letter, there was no

other basis either for the AO or for the CIT(A) to presume that

the assessee had given some advances amounting to Rs.300

Lacs to some Mr. Rahul.

exchanged between the assessee and his son, some family

disputes were going on and one of the sons Shri Hemant

Kataria, without having any authentic information, was simply

assuming that some sum of Rs.300 Lacs was given by the

assessee to Shri Rahul. However, on the another loose paper

inventorized as Page No. 51 of LPS-12, as seized from the same

premises along with the above referred letter, again two jottings

with figures of ‘20000’ & ‘9900’ have been found written under

the name ‘Rahul’. We also notice that a claim was made by 42

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

assessee before both the authorities that the total amount of

advance to Shri Rahul was not to the extent of Rs.300 Lacs but,

it was only to the extent of Rs.29,90,000/-. It was submitted

that Mr. Rahul was given advances in two parts of

Rs.20,00,000/- and Rs.9,90,000/- and since the assessee and

other family members were habituate to write the figures in

coded form by omitting two zeros, the sum of Rs.20,00,000/-

and Rs.9,90,000/- were respectively written in the coded form as

‘20000’ and ‘9900’. We also find that in the jottings found made

in yet another loose paper inventorized as Page No. 44 of LPS-12,

which has been reproduced by the Ld. CIT(A) at Para (11.3) on

Page No. 71 of the impugned Order while adjudicating another

ground of additions made by Ld. AO. We find that based upon

such loose paper, the AO, while making addition on some other

issue, for which the assessee and Revenue have raised separate

grounds and which have been discussed in the subsequent

paras, has reached to a conclusion that the assessee had given

loans/ advances to various persons for the amount as written

against the name of such persons, in the coded form, by

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

omitting two zeros. On a perusal of the seized loose paper, we

find sufficient force in the contention of the assessee that the

factum of making advances amounting to Rs.20,00,000/- and

Rs.9,90,000/-, in two parts are also jotted down in such loose

paper. Thus, we find that as against the only one mention of

Rs.300Lacs on one letter, on all other loose papers which have

also been relied upon by Ld. AO while making another addition,

the aggregate amount of advances given by the assessee to Mr.

Rahul works out to be at Rs.29,90,000/- only.

jotting in some letter from one of the sons of the assessee

addressed to the assessee, ld. AO or the Ld. CIT(A) was not

having any other corroborative evidence on record. We notice

that Ld. AO has not made any attempt to make any enquiry

either from Mr. Rahul or from Mr. Hemant, the author of the

letter. Even the statement of the assessee on this issue was not

sought either by the Investigation Wing or by the AO. However,

as against such sole piece of evidence in the form of letter, with

the aid of the other loose papers, Ld. counsel for the assessee

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

has established that the amount of advances given to Mr. Rahul

was to the extent of Rs.29,90,000/- only. And on this document

which contain names of various other person to whom loans and

advances are alleged to have been given is also in dispute before

us and shall be dealt with in subsequent paras. Accordingly in

the given facts and circumstances of the case, we reverse the

finding of the Ld. CIT(A) given in the impugned order on the

subject issue.

even in respect of sum of Rs.29,90,000/-, no separate addition

was called for inasmuch on the basis of jottings of

Rs.20,00,000/- and Rs.9,90,000/-, made in the loose paper

seized and inventorized as LPS-12, Page no. 44, the AO has

already made a separate addition of Rs.7,83,60,000/- which

was partly confirmed by Ld. CIT(A). Since, both the assessee and

the Revenue have taken separate grounds on this issue, which

have been adjudicated by us in the subsequent paras, and

further since, we find that the amount of Rs.29,90,000/- has

already been considered by both the authorities below while

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

making/ restricting the addition as aforesaid, in our considered

view, no further addition is required on account of advances

amounting to Rs.29,90,000/- made by the assessee to Mr.

Rahul. It is well known maxim of the law that the same addition

cannot be made twice. Since, while making the separate addition

of Rs.7,83,60,000/-, which includes the advances amounting to

Rs.29,90,000/- given by the assessee to Mr. Rahul, the AO has

separately determined the interest amounting to

Rs.1,25,23,200/-, in our considered view, no separate addition

is required even in respect of receipt of interest on advance to

Mr. Rahul. Accordingly, the Ground Nos. 3(a) & 3(b) of the

assessee are allowed.

action of the Ld. CIT(A) in not granting any benefit of telescoping

to the assessee in respect of advances given to Mr. Rahul against

the additional income of Rs.3,60,00,000/- surrendered and

shown by the assessee himself in his return of income for the

assessment year under consideration. This ground of the

assessee becomes infructious and academic since we have 46

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

already deleted the addition of Rs.3 cr. for the alleged advance to

Mr. Rahul. However we find that the Ld. CIT(A) has dislodged the

claim of the assessee on the ground that the assessee failed to

demonstrate that the advance to Rahul was given only during

the year under consideration and not in the earlier years and

therefore, the benefit of telescoping of such advances against the

additional undisclosed income shown in the return for the year

under consideration cannot be given. In our considered opinion,

the Ld. CIT(A) is not correct in his approach for the reason that if

the assessee had given the advances in the earlier years then,

legally, no addition on this count could have been made in the

assessee’s income for the year under consideration. Once the

CIT(A) has confirmed the addition under s.69 of the Act, it has to

be necessarily held that the advances were given by the assessee

during the year under consideration only and not in the earlier

years, for the reason that under the provisions of s.69 of the Act,

an addition can be made only for the year in which the assessee

has been found to have made undisclosed investment. In our

view, the Ld. CIT(A) was not correct in sailing on two boats

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

inasmuch while confirming the addition, he has presumingly

affirmed that the assessee had made the investment only during

the year under consideration but, while considering the benefit

of telescoping, the Ld. CIT(A) has presumed that the assessee

might have made such investments by giving advances to Mr.

Rahul in earlier years. In our considered view, since, we have

fully deleted the addition of Rs.3,00,00,000/- so made by the

AO, as aforesaid, the question of telescoping has become

academic in nature only. Accordingly, the Ground No. 3(c) of the

assessee is allowed.

the Ld. CIT(A) did not accept his plea that the advances given to

Mr. Rahul were received back during the year under

consideration only. In our view, having given a finding that on

account of advance given to Mr. Rahul, no separate addition is

warranted, this ground has become academic in the nature only.

Even otherwise, we find that the assessee at no stage could

substantiate his claim of having received back the advances

given to Mr. Rahul with any positive evidence, the claim of the 48

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

assessee is not eligible for acceptance. Accordingly, ground no.

3(d) of the assessee is dismissed.

agitated the confirmation of addition amounting to

Rs.9,00,000/- made by the AO on account of interest on

advances amounting to Rs.3,00,00,000/- given to Mr. Rahul.

Since while adjudicating the ground No. 3(a) & 3(b), we have

already given our findings that first of all, the amount of advance

given to Mr. Rahul was only to the extent of Rs.29,90,000/- and

further since, we have already given a finding that in respect of

such advances and interest thereon, separate additions have

already been made by the AO, in our considered view, the

addition of Rs.9,00,000/- so made by the AO is not sustainable.

Accordingly, ground Nos. 4(a), 4(b) & 4(c) of the assessee are

allowed.

Revenue – Unexplained Investment in Land u/s. 69 –

Rs.52,00,000/- and Profit on sale thereof – Rs.12,60,000/-

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

Ld. CIT(A) in not giving a finding to the effect that the assessee

having liquidated the investment made in land at

Rs.52,00,000/- during the relevant year itself was having such

funds available for explaining the sources of his unexplained

investments. Whereas, the Ground Nos. 3 & 4 raised by the

Revenue pertains to the action of the Ld. CIT(A) in giving

telescoping benefit of addition of Rs.52,00,000/- made by the AO

on account of unexplained investment in land and

Rs.12,60,000/- on account of profit on sale of such land, against

the surrendered income of Rs.3.60 cr. offered during search and

disclosed in Income Tax Return.

records are that one page no. 47 of LPS-12 was found and seized

from the premises of the assessee. Such loose paper was in the

form of a letter dated 12-01-2011 written by Shri Hemant

Kataria [one of the sons of the assessee] to the assessee asking,

vide Q. No. 9, for details of land purchased and sold at Indore. 50

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

Below such query, some jottings of purchase and sale are

written in the handwriting of the assessee that 65000 sq. ft. land

purchased for Rs.80/- per sq. ft. and 36000 sq. ft. land sold for

Rs.115/- per sq. ft.During the course of the assessment

proceedings, Ld. AO required the assessee to furnish the details

of purchases and sales. The assessee, in response, stated that

he had made an investment of Rs.52,00,000/- for purchase of

land but the registration of the same had not taken place. The

assessee further added that the entire investment was made out

of his undisclosed income and the same was covered by the

additional income of Rs.3,60,00,000/- shown by the assessee in

his return of income for the relevant assessment year. Since as

per the assessee, no formal documents were executed for

purchase and sale, the details of sellers and buyers could not be

furnished. Ld. AO has stated that the assessee did not file any

details in respect of purchasers and sellers or copies of

agreements etc. Ld. AO further stated that the payment made by

the assessee was not recorded in the books of account and

explanation offered by the assessee regarding nature and source

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

of investment was found unsatisfactory, Ld. AO treated the

investment of Rs.52,00,000/- in purchase of property as

unexplained investment u/s. 69 of the Act. and made addition

thereto, and also made an addition of Rs.12,60,000/- on

account of short term capital gain on sale of land.

The Ld. CIT(A) stated that Ld. AO was justified in holding that

the assessee had purchased 65000 sq. ft. land in Indore

@Rs.80/- per sq. ft. by making investment of Rs.52,00,000/-.

However, the Ld. CIT(A) also found that the assessee has

disclosed additional income of Rs.2,60,00,000/- in his return of

income for the relevant assessment year which is sufficient to

cover the subject investment in purchase of land. Therefore, the

Ld. CIT(A) directed Ld. AO to allow credit of surrendered amount

against such investment and held that no separate addition was

warranted. Further, in respect of the addition of Rs.12,60,000/-

on account of profit on sale of land, the Ld. CIT(A) has stated

that the incriminating document page no. 47 of LPS-12 evidently

reflects the earning of profit @Rs.35 per sq. ft. on sale rate of

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

Rs.115 sq. ft. as against purchase of Rs. 80 per sq. ft. Therefore,

the action of Ld. AO has been justified and the addition requires

to be confirmed. However, the Ld. CIT(A), concurring with the

contention of the assessee, held that no separate addition is

required as the same is to be considered as covered in the

surrendered income of Rs.2.60 crores shown by the assessee

from the sources other than business income. Accordingly, the

Ld. CIT(A) directed Ld. AO to delete the addition.

as well as the Revenue have preferred cross-appeals before this

Tribunal on this issue.

Assessing Officer.

one written synopsis and the relevant portion of the source is

being reproduced as under:

a). Key Points of Assessee’s Submission and Relevant Pages of Paper Book: S. Submission in Brief Relevant Remarks 53

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

No. Pages of Paper Book 1 The investment of Rs.52,00,000/- 68 The assessee disclosed an was made by the assessee out of additional income of his undisclosed income already Rs.3,60,00,000/- in his return of surrendered and disclosed in the income for the relevant return of income assessment year. The same has also been considered in the table given at Part-II above.

2 In respect of the subject - transactions, no registration of documents was done. Since no formal documents regarding purchases and sales were entered into, the same could not be produced before the lower authorities and in such eventuality, the assessee also could not furnish the details of purchasers and sellers.

b) Key Points of Assessee’s Submission and Relevant Pages of Paper Book: S. Submission in Brief Relevant Remarks No. Pages of Paper Book 1 The assessee disclosed an 68 The income has also been additional income of considered in the table given at Rs.3,60,00,000/- in his return of Part-II above. income for the relevant assessment year which is inclusive of the profit of Rs.12,60,000/- from sale of the subject land and therefore, no separate addition was warranted.

before the CIT(A) placed at page no. 23 & 24 of the Paper Book.

The same has also been reproduced by the CIT(A) at page no. 63

of the impugned Order while adjudicating the Ground Nos. 8(a)

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

&8(b) raised by the assessee. The assessee wish to place reliance

on such detailed written submission made before the CIT(A).

place before us and carefully gone through the order of the lower

authorities and documents filed before us by both the sides. We

find that the Ld. CIT(A) has rightly confirmed the addition of

Rs.52,00,000/- and Rs.12,60,000/- respectively on account of

unexplained investment in land and profit on sale thereof. We

also find no infirmity in the action of the Ld. CIT(A) to grant the

benefit of telescoping to the assessee in respect of the aforesaid

undisclosed investment and undisclosed profit against the

additional undisclosed income of Rs.2,60,00,000/- voluntarily

shown by the assessee himself in his return of income furnished

under s.153A of the Act for the reason that the income so shown

by the assessee was sufficient to cover up the aforesaid

undisclosed investment in the land and as also, the undisclosed

profit on sale of land. Thus, the ground nos. 3 & 4 of the

Revenue, being devoid of any merits, are hereby dismissed.

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

the Ld. CIT(A) has erred in not giving a finding to the effect that

the sales proceeds from the sales of the land were available to

the assessee for explaining the sources of other undisclosed

investments found made by him during the year under

consideration.

assessee that from the seized documents viz. page no. 47 of LPS-

12 containing letter dated 12.01.2011 placed at page no. 150 of

the assessee’s Paper Book, it is evident that during the year

under consideration itself, the assessee had made an investment

of Rs.52,00,000/- for purchase of certain lands admeasuring

65000 sq.ft. at a rate of Rs.80/- per sq. ft. and such investment

is claimed to have been made out of undisclosed income

amounting to Rs.2,60,00,000/- It has further been contended

that from the same seized paper, it is evident that out of the

aforesaid 65000 sq.ft. of land, during the year under

consideration itself, the assessee had sold 36000 sq.ft. land at a

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

rate of Rs.115/- per sq.ft. i.e. for Rs.40,80,000/-. It has further

been submitted by the assessee that in respect of the profit on

sale of the 36000 sq.ft. land which works out to be Rs.35/- per

sq.ft. at Rs.12,60,000/-, a separate addition has duly been made

by the AO himself. It has been contended that the sales proceeds

amounting to Rs.40,80,000/- from the subject land was duly

available to the assessee for explaining his sources for other

unexplained and undisclosed investments in loans and advances

and as also, in the scrap business. It was prayed that a suitable

direction for grant of benefit of telescoping against such sale

proceeds of Rs.40,80,000/- be allowed against other

unexplained investments found to have been made in the same

year.

the ground that the assessee could not establish nexus of such

sales proceeds with other unexplained investments.

and facts and circumstances of the case. In our considered view,

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

having held that the assessee had derived income amounting to

Rs.12,60,000/- from partial sale of land, it has to be necessarily

held that the sales proceeds of such land amounting to

Rs.40,80,000/- was available with the assessee. We find that the

transaction of purchase of land has its nexus with the letter

dated 12.01.2011. Business of trading in scrap and other related

activities are since the beginning of the year and another seized

paper showing loans and advance is having a date of December.

Therefore this plea of the assessee that sale proceeds of land was

used in giving loans and advances and used in the business of

scrap has no merits. Accordingly, the ground no. 5 of the

assessee appeal for A.Y. 2011-12 is dismissed

Ground Nos. 5 & 6 of the Revenue regarding addition for

unexplained Loans & Advances to various persons u/s. 69 and

Interest earned thereon.

action of the Ld. CIT(A) in partially confirming the addition to the

extent of Rs.36,10,000/- out of the total addition of 58

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

Rs.7,83,60,000/- made by the AO on account of loans and

advances. The ground nos. 7(a), 7(b) & 8 of the assessee are

against the action of the Ld. CIT(A) in giving a direction to the

AO to recalculate the amount of interest on the confirmed

addition of Rs.2,31,95,000/- on account of loans and advances.

Whereas, the Ground No. 5 raised by the Revenue pertains to

the action of the Ld. CIT(A) in deleting the addition of

Rs.6,90,00,000/- out of the total addition of Rs.7,83,60,000/-

made by the AO on account of unexplained loans and advances.

Further, the Ground No. 6 of the Revenue is against the action of

the Ld. CIT(A) in restricting the addition of interest made on

account of unaccounted loans & advances and directing to re-

calculate on the amount of Rs.2,31,95,000/- as against

Rs.10,43,60,000/-.

records are that on page 44 of LPS-12, found and seized from

the premises of the assessee, a list of all the investment made/

loans advanced by the assessee had been prepared. Such loose

paper has also been scanned by the Ld. CIT(A) at Page no. 71 of 59

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

the impugned Order. On the basis of the loose paper, the AO has

prepared one table by decoding and summarizing the

transactions found noted on page no. 44 of LPS-12. During the

course of the assessment proceedings, the AO, vide his

questionnaire dated 25-09-2013, required the assessee to

explain the contents of page no. 44, LPS-12 probably bearing a

date ‘27.12.’ which contained reference of giving loans and

advances aggregating to Rs.10,43,60,000/- to various persons.

In response to the same, the assessee, vide his counsel’s letter

dated 25-01-2014, made a detailed explanation in respect of the

subject loose paper and also demonstrated that the aggregate

amount of Rs.10,43,60,000/- as calculated by him was suffering

from some factual errors and the total of the advances ought to

have been at Rs.2,31,95,000/- only. Ld. AO rejected the

explanation and held that the advance of Rs.10,43,60,000/- as

unexplained investment of the assessee under s.69 of the Act in

the form of loans and advances. Ld. AO, after giving a set-off of

the additional income of Rs.2,60,00,000/- offered by the

assessee from such undisclosed investment of

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

Rs.10,43,60,000/-, made an addition of Rs.7,83,60,000/- in the

hands of the assessee as his undisclosed income. Further, the

Ld.AO also estimated interest @12% p.a. on the aforesaid loans

& advances and made a separate addition of Rs.1,25,23,200/- in

the assessee’s income for the year under consideration.

The Ld. CIT(A) noted that Ld. AO was inclined to decode the

figures noted in the said loose paper by adding two zeros but

while decoding and interpreting the loose paper, Ld. AO

committed some mistakes. The Ld. CIT(A) has reproduced the

chart prepared by the AO and given in the assessment order. At

para (11.5), the Ld. CIT(A) has observed the mistake of decoding

committed by the AO in respect of two entries. The Ld. CIT(A)

observed that in respect of two entries, serialized as Item No. (2)

& (3), Ld. AO committed mistake inasmuch instead of decoding

the figure with two zeros, decoded the same with three zeros

which resulted into over-reading of the figures by a sum of

Rs.1,21,50,000/-. Thus, at para (11.6), the Ld. CIT(A) directed to

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

delete the addition of Rs.1,21,50,000/- on account of mistake of

decoding.

additions in respect of the figures written in brackets on account

of Borana Jameen, Kareni Jeemen and 19km Jeemen listed at S.

No. 11, 12 & 13 of loose paper. Ld. CIT(A) observed that the

figures written in brackets were the requirements of forthcoming

months. In respect of 19km Hemant Jeemen, the requirement of

3 crores has been shown in the month of May which means May

2011 since the date of search is 07.09.2011 and the same falls

in the next financial year 2011-12. But Ld. AO made addition of

this amount in F.Y. 2010-11.

considered the plea of the assessee that neither during the

search proceedings nor during assessment proceedings, the

assessee was ever confronted with individual entries of the

document. At para (11.9), the Ld. CIT(A) stated to have

forwarded the submission of the assessee to the AO for his

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

remand report and also reproduced the remand report of Ld. AO

on this issue. At para (11.10), the Ld. CIT(A) reproduced the

rejoinder of the assessee on the remand report filed by Ld. AO.

that undisputedly, every entry of the page no. 44 were never

confronted to Shri Sunil Kataria (authorized person on behalf of

the assessee) or to the assessee. The Ld. CIT(A) further stated

that undisputedly, the assessee has made a surrender of Rs.2.60

crores on this account as against the determined amount of

Rs.10.43 crores. The Ld. CIT(A) also observed that from the

assessment order and remand report, it is evident that no

enquiries were found conducted by the AO on the issue of

bracketed figures which were shown as future requirements. No

evidences have been brought on record to prove that the figures

shown in brackets were actually paid/ advanced. The Ld. CIT(A)

further stated that ld. AO has not conducted any enquiry to

ascertain the details and nature of loans/ advances or

investment in land or projects. Accordingly, the Ld. CIT(A)

directed Ld. AO to delete the addition to the tune of Rs.3.90

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

crores (figures in brackets) on account of future projections

found made against items at S. No. 11 to 13 of Page no. 44 of

LPS-12.

observed that at S. No. 14 of loose paper, there is mention of

name of one Atul, CA against whom the remark “300 Lakh

march profit required” is given. The Ld. CIT(A) stated that ld. AO

has made addition of Rs.3 crores without even raising a single

query. The Ld. CIT(A) further stated that the amount seems

some future planning or requirement as ‘March’ is clearly written

on this incriminating document dated 27/12/2010. The Ld.

CIT(A) referred to the contention of the assessee that it was

planning to bring back the amount of profit earned in the

undisclosed business of scrap in the business through CA Atul.

The explanation of the assessee was found reasonable and

plausible by the Ld. CIT(A) as the assessee has declared

undisclosed income of Rs.3.60 crores during the year under

consideration. Accordingly, the Ld. CIT(A) stated that the AO has

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

not been found justified in making addition of Rs.3 crores and

directed to delete the same.

that undisputedly, the assessee has made disclosure of Rs.2.60

crores on the basis of entries in the impugned document and

since the disclosure made has been set-off partly with the

addition of Rs.52,00,000/- (as per ground 7) and Rs.12,60,000/-

(as per ground 8), the net surrendered amount available for

adjustment is Rs.1,95,40,000/- which can be allowed to be

reduced from confirmed additions of unexplained loans and

advances.

the Ld. CIT(A), at para (12.3), has observed that no evidence or

material has been found during search or assessment

proceedings to infer that the assessee has earned any interest/

return out of impugned investment but at the same time, it has

been duly admitted by the assessee that the entries in the

document were in the nature of loans and advances and

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

disclosure of 2.60 crores has also been made on this account.

Accordingly, the Ld. CIT(A) directed the AO to re-calculate the

interest income on confirmed amount of Rs.2,31,95,000/-.

as well as the Revenue have preferred cross-appeals before this

Tribunal on the issue.

and finding of Ld. AO.

synopsis and the relevant portion of such synopsis is being

reproduced below:

“ Key Points of Assessee’s Submission and Relevant Pages of Paper Book: S. Submission in Brief Relevant Remarks No. Pages of Paper Book 1 The subject loose paper page no. 149/151 Such loose paper was prepared 44 of LPS-12 is not in the by Mr. Arvind Kataria, one of handwriting of the assessee. three sons of the assessee. The Further, it has not been prepared assessee had owned such paper on the instruction or requirement before the search party and even of the assessee. before the Assessing Officer, the assessee had fastened his liability on the subject loose paper. Thus, in any manner, the assessee is not disowning the subject loose paper.

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

2 The date put on such loose paper - Probably, the purpose and intent is that of 27-12. Thus, it can be of preparing such loose paper, by presumed that it was prepared on Shri Arvind Kataria, was to keep 27-12-2010, a date which falls in himself reminded of certain the previous year relevant to the things. assessment year under consideration. 3 Such loose paper is mixed in the - For an example, against item no. nature. It contains jottings of 11 of the subject loose paper, certain transactions which have where there is a mention of already taken place. It also 'Borana Jameen', a description of contains certain jottings for work (Jan. 30-40 lac Require). Similar to be done. It will be appreciated description is also written against that if the said loose paper was item no. 12, 13 & 14. prepared on 27-12-2010, then the notings with the description of January clearly relates to something to be done in the next month.

4 During the course of the entire - - search proceedings, statement of the assessee or author of the subject loose paper was not recorded by the search party. 5 The AO had rightly attempted to 151 However, probably under some decode the subject loose paper by mistake, in respect of two items, adding two zeros. instead of adding two zeros, he has added three zeros. For the second item of 8500=00, jotted down with the description of 'Lndriji', the AO has taken the figure of Rs.85,00,000/- instead of correct figure of Rs.8,50,000/- only. Likewise, for the third item of 5000=00, jotted down with the name of Anil Ji, the AO has mistakenly taken the figure by adding three zeros as that of Rs.50,00,000/- instead of taking the correct figure of Rs.5,00,000/-. The papers ought to have been decoded at the figures as submitted before the CIT(A) at para (2.06) of our written submission before him which has also been reproduced by the CIT(A) at page nos. 31 & 32 of his Order. 6 In respect of the item no. 11, 151 It appears that while interpreting attributable to 'Borana Jeemen', the item no. 13, the AO has taken for the figures written in the said into consideration jottings made

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

loose paper as 5000=00, instead adjoining to figure of 6200=00 of decoding it to be Rs.5,00,000/-, with the description of '6 May the AO has decoded the same to 300Lac Req.' and probably, under be at Rs.45,00,000/- which is a patently wrong notion and patently wrong. misinterpretation, he added some Likewise, in respect of item no.12, future requirement with the attributable to 'Kareni Jeemen', amount of investment. It is a for the figures written on the loose settled position of law that a paper as 600=00, the AO, without document has to be read in the assigning any reason for doing so, holistic manner and in the same decoded the same at manner in which the author of Rs.50,60,000/-. the document was purported to. In the same fashion, without The subject loose paper cannot assigning any reason, for the item be interpreted in a manner no. 13, with the description of '19 suiting the convenience of the km Hement Jeemen', the AO has AO. On a plain reading of the decoded the figure of 6200=00 as description written against item Rs.3,06,20,000/- instead of the no. 13, no person of ordinary correct amount of Rs.6,20,000/-. prudence could have reach to a conclusion that the assessee had actually given a sum of Rs.300 lacs to Mr. Hemant which was only shown as a requirement on the loose paper.

7 The AO has also misinterpreted 151 During the relevant previous the figures ' =00 (300 Lac year, the assessee had earned an March Profit Req.)', written income of Rs.3,60,00,000/- from against item no. 14 'Atul C.A.' as undisclosed sources. Such Rs.3,00,00,000/- without income was earned by the assigning any reason. assessee from carrying out unaccounted transactions of The figure of 300 Lac with the scrap trading, interest income on narration of 'March Profit Require' unaccounted money lending and was just a planning (which could others. Such income was earned not materialize) and it was not, in by the assessee from undisclosed any manner, representing any sources and there was no loan or advance of Rs.300 Lacs recording of such income in his made by the assessee to Atul C.A. regular books of account. The as wrongly interpreted by the AO. assessee wanted to bring such income in his regular books of account. In such circumstances, Shri Arvind Kataria, son of the assessee, had contacted his friend at Kolkata and such friend had intimated Shri Arvind Kataria that some C.A. Atul can manage this profit for him. Eventually, no such profit could be managed and the same got unearthed during the course of search proceedings. 8 No independent enquiry -

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

conducted by the AO either during the assessment proceedings or during remand report proceedings. No material brought on record by the AO. 9 During the relevant previous year, - The sources of investments of the assessee had given a sum of Rs.2,31,95,000/- for giving loans Rs.2,31,95,000/- only by way of and advances are covered by the loans & advances and the entire undisclosed income of amount of loans & advances is Rs.3,60,00,000/- offered by the covered by the total income of assessee in his return of income Rs.3,60,00,000/- already offered for the assessment year under by the assessee in his return of consideration [kindly refer Table income at Part-II above].

before the CIT(A) placed at page no. 24 to 31 of the Paper Book.

The same has also been reproduced by the CIT(A) at page no. 67

to 70 of the impugned Order while adjudicating the Ground Nos.

9(a) to 9(c) raised by the assessee. Supplementary written

submission is also placed at page no. 152 to 157 of the Paper

Book reproduced below:

Key Points of Assessee’s Submission and Relevant Pages of Paper Book: S. Submission in Brief Relevant Remarks No. Pages of Paper Book 1 On a perusal of the page no. 44 of 151 The action of the AO can be LPS-12, the only loose paper on described only a result of bald which the details of loans and guesswork, surmises and advances are jotted down, it shall conjectures without any basis. be observed that nowhere there is a mention of receipt of interest of From the subject loose paper, it a sum of Rs.1,25,23,200/- as cannot be interpreted that all the presumed by the AO. loans and advances were given as interest bearing loans. Furthermore, from such loose paper, it cannot be interpreted that all the loans were given on 69

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

interest on very first day of the relevant previous year so as to yield interest income to the assessee for the whole year. 2 The AO has worked out the - The actual aggregate amount of interest @ 12% on the assumption loans and advances given by the that the assessee had given loans assessee during the relevant and advances aggregating to previous year was to the extent of Rs.10,43,60,000/-. Rs.2,31,95,000/- only. The interest bearing loans were given by the assessee, on various dates, during the relevant previous year from time to time out of undisclosed income generated by him from time to time. 3 From making the loans and - - advances, the assessee had earned interest income nearly Rs.15,00,000/- only. The interest income so earned was redeployed by the assessee for making loans and advances. Since the assessee has already considered the aggregate amount of loans and advances of Rs.2,31,95,000/-, which includes the amount of loans and advances given from the deployment of interest, no separate addition on this count is called for. 4 The assessee himself had shown - - an income of Rs.3,60,00,000/-, in his return of income for the assessment year under consideration, from undisclosed sources and therefore, even if any receipt of interest is assumed, the same is very well covered by the aforesaid income and no further addition was warranted

placed on record, duly considered the facts and circumstances

of the case, orders of lower authorities, written and oral

submissions made from both the sides. 70

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

assessee’s premises, one loose paper inventorized as page no. 44

of LPS-12 was found and seized supposedly being a date on

top’27/12’. From the copy of such loose paper, as furnished by

the assesse in his paper book at page no. 149 and as also,

scanned by the Ld. CIT(A) in his Order at page no. 71, we find

that such loose paper is in handwritten form in which against

the 27 names/ items, some amounts have been written. We find

that the AO has held that the figures written on such paper were

in coded forms by omitting two zeros. Further while undertaking

the exercise of decoding the figures, in respect of some items, the

AO has rightly made the decoding for an example, in respect of

S. No.1, against the name of some Prashant Ji, the written

figures of 50000=00 has rightly been decoded by the AO to

Rs.50,00,000/-. Likewise, against the Item

No.4,5,6,7,8,9,10,11,15,16,17 & 18, all the figures written have

been decoded by adding two zeros. However, we find that in

respect of two items viz. the item no. 2 & 3 respectively of

8500=00 and 5000=00, have erroneously been decoded by the

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

AO by adding three zeros in the figures, which resulted in the

misinterpretation of the amount respectively at Rs.85,00,000/-

and Rs.50,00,000/-. Before us Ld. CIT(DR) has not rebutted

such arithmetical error committed by the AO. Accordingly, in our

considered view, there is no infirmity in the CIT(A)’s action in

deleting the additions amounting to Rs.1,21,50,000/- pertaining

to aforesaid two items.

LPS-12, against three items serialized at S. No. 11, 12 & 13,

respectively under the captions ‘Borana Jameen’, ‘Kareni

Jameen’ and ‘19km Hemant Jameen’, adjacent to the figures,

there is some mention in brackets about some requirements

again in the coded forms. We find that the AO without

conducting any independent enquiry and merely on the basis of

the jottings of the word ‘requirement’, presumed that the sum of

funds required by the assessee were actually so invested by the

assessee during the year itself. We find merit in the findings of

the CIT(A) that the loose paper was prepared on 27.12.2010 and

therefore, any mentioning regarding the requirement of funds in 72

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

the May can only be interpreted that such funds were required

in the May 2011 and not in the year under consideration. On

such holistic interpretation of the loose paper, it cannot be said

that the assessee was required to make any investment of

Rs.300 lacs for purchase of any land at 19km. In our considered

view, it is not the case of the AO that the description mentioned

against the aforesaid three items denotes the amount already

invested by the assessee prior to the search. In our view, such

description only denotes the requirements of some further funds

in future and therefore, it can only be termed as planning and

projections and not the actual investments made by the assessee

during the year under consideration. We note that at no stage,

the revenue conducted any independent enquiry regarding the

alleged investment by the assessee either from the records of

Sub-Registrar or any other sources. In such circumstances, in

our considered opinion, merely on the basis of jottings with the

description ‘requirement’ and the undisclosed investment by the

assessee cannot be presumed merely on guess work, without

having any corroborative evidence on record. Thus, we find no

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

infirmity in the action of the CIT(A) in deleting the partial

additions in respect of the aforesaid three items.

was also accepted by the CIT(A), that the description with the

words ‘(300 Lac March profit require)’ against the name of some

‘Atul C.A.’ as serialized at S. No. 14 of the impugned seized

paper, it cannot be interpreted that the assessee made any

undisclosed investment. Such description only denotes some

future planning. We find that the AO has not conducted any

independent enquiry from Atul CA and further by no stretch of

imagination, the description written on the loose paper can be

interpreted as making of any undisclosed investment by the

assessee. Thus, we find no infirmity in the action of the CIT(A) in

deleting the addition made by the AO on the allegation of

advance to Atul CA on the basis of jottings made at S. No. 14 of

the subject loose paper. In nutshell, we are in complete

agreement with the findings given by the Ld. CIT(A) that during

the year under consideration, the assessee had made investment

by way of loans and advances aggregating to a sum of 74

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

Rs.2,31,95,000/- only and not of Rs.10,43,60,000/- as

determined by the AO. Here, it would not be out of context to

mention here that the aforesaid sum of Rs.2,31,95,000/- also

includes the advances amounting to Rs.29,90,000/- given by the

assessee to Mr. Rahul for which we have given separate findings

while adjudicating other grounds, supra. Accordingly, we find no

merit in the Ground No. 5 raised by the Revenue and the same

is hereby dismissed.

assessee, from the CIT(A)’s Order, we note that after determining

the amount of undisclosed investment by way of loans and

advances at Rs.2,31,95,000/-, Ld. CIT(A) vide para (11.13) of his

Order, has also made a direction to give the benefit of

telescoping of income disclosed by the assessee in his return of

income filed under s.153A of the Act for the assessment year

under consideration. The CIT(A) has restricted the benefit of

telescoping to the extent of Rs.1,95,40,000/-. The CIT(A) while

holding the claim of the assessee from Rs.2,60,00,000/- to

Rs.1,95,40,000/-, has held that the separate benefit of 75

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

telescoping has already been granted by him to the assessee in

respect of undisclosed investment in purchase of land at

Rs.52,00,000/- and profit on sale of such land at

Rs.12,60,000/- aggregating to a sum of Rs.64,60,000/- while

adjudicating the separate grounds related to such issues.

telescoping benefit given by the Ld. CIT(A) against the total

undisclosed income of Rs.3.60 cr. surrendered during the course

of search and offered to tax in the return of income. As observed

earlier in the preceding paras, we will specifically deal with the

issue of telescoping benefit and set off of the addition sustained

in the hands of assessee against the income surrendered and

offered to tax, in the subsequent paras. However, since we have

deleted some of the additions sustained by ld. CIT(A) there will

be an overall change in the telescoping benefit available to the

assessee. Thus, these two grounds of the assessee are partly

allowed subject to our working of telescoping benefit available to

the assessee.

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

assessee and ground No. 6 raised by the Revenue which relates

to issue of addition made on account of interest earned by the

assessee on various loans and advances made by ld. AO. We

note that Ld. AO made addition for unexplained loans and

advances at Rs.10,43,60,000/- based on the seized documents

page No. 44 LPS-12. Ld. AO also calculated the interest income

at Rs.1,25,23,200/- which is computed @12% interest per

annum on the sum of loans and advances.

CIT(A), he after examining the facts confirmed the addition of

Rs.2,31,95,000/- in place of the addition of Rs.10,43,60,000/-

made by the Ld. AO. As regards on interest Ld. CIT(A) directed

the Ld. AO to recompute the interest on the reduced amount of

addition.

advances was raised by both sides. We have concurred with the

finding of Ld. CIT(A) and sustained the addition of loans and

advances at Rs.2,31,95,000/-. 77

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

Ld. AO calculated the interest @ 12% for the whole year. We

however on perusal of the seized document find that there is a

date mentioned on the top of seized documents LPS 12 page 44

which is ‘27/12’. Both the assessee and revenue have accepted

that the date on this document was 27/12/2010. The addition of

loans and advances has been made purely on the basis of this

loose paper. Therefore, all types of addition based on such loose

paper needs to be made keeping in mind this date i.e.

27.12.2010. Thus the alleged loans and advances of

Rs.2,31,95,000/- needs to be presumed to be give on

27.12.2010 and therefore the interest income is to be calculated

only from December 2010 till March 2011. In the instant year

under appeal by applying rate of 12% on the loans of

Rs.2,31,95,000/-, the interest for 4 months will come to

Rs.9,27,800/- only. We, therefore, set aside the finding of Ld.

CIT(A) and confirm the addition for interest at Rs.9,27,800/-.

Thus, ground no. 7(a) & 7(b) of assessee’s appeal is partly

allowed and dismissed ground no.6 raised by Revenue.

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

benefit being available to the assessee. In most of the additions

confirmed by Ld. AO and subsequently confirmed/partly

confirmed by Ld. CIT(A), this issue of telescoping benefit has

been discussed. Now since we have dealt with all the additions

challenged before us by assessee and revenue and have decided

the same, in order to keep clarity, we deem it proper to deal with

this issue keeping in mind our finding of various additions dealt

by us in the forgoing discussions.

the Act and in his individual name surrender of Rs.6 cr. was

made which was bifurcated into two parts. For A.Y. 2011-12

Rs.3.60 cr. was offered to tax in the income tax return and the

remaining sum of Rs.2.4 cr. was disclosed in the return of

income for A.Y. 2012-13. The instant appeal relates to A.Y.

2011-12 for which Rs.3.60 cr. have been offered to tax.

First we will mention the details of additions confirmed by us in

the hands of assessee for A.Y. 2011-12:

i. Estimated net profit in scrap business Rs.94,14,731/- 79

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

ii. Unexplained investment in scrap trading business Rs.38,78,724/- iii. Unexplained investment in purchase of land Rs.52,00,000/- iv. Unaccounted profit on sale of land Rs.12,60,000/- v. Unexplained investment in loans and advances Rs.2,31,95,000/- vi. Estimated interest on unexplained Rs.9,27,800/- vii. Loans and advances Rs.27,50,000/- Total Rs.4,38,76,255

has requested to provide telescoping benefit of the following:

of providing set off of accumulated unaccounted profit from

scrap business till 30th November 2010.

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

before us. In order to examine the issue of telescoping benefit we

have examined the records and also considered our finding

adjudicating various issues raised by both the sides. So far as,

the amount of addition confirmed by us the same remains at

Rs.4,38,76,255/- (as stated above). As regards set off of income

is concerned there is no doubt with regard to the benefit of set

off of available to the assessee against undisclosed income

offered to tax at Rs.3.60 cr. which was admitted during the

course of search and subsequently disclosed in the income tax

return.

unaccounted business of trading in scrap and granules at

Rs.62,76,487/-. As far as, the total estimated profit is

concerned, we have already decided the estimated net profit to

be added in the hands of assessee at Rs.94,14,731/- which is

10% of the total unrecorded sales of Rs.9,41,47,310/- and this

figure of unrecorded sales is derived from seized diaries bearing

Annexure No. A1 to A7. On perusal of the seized record we find 81

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

that the assessee has carried out the transactions of sales from

April 2010 till completion of year. In other words this

unaccounted business of trading in scrap has been carried

round the year and one cannot dispute that the assessee kept on

earning income as and when sales were made. Such income

from scrap trading business kept on accumulating with the

assessee.

LPS-12, Page 44. We have analysed this seized document

elaborately in the preceding paras and have confirmed the

addition of Rs.2,31,95,000/- as unaccounted loans and

advances given by the assessee. On this seized loose paper a

date 27.12.2010 is mentioned and since the addition has been

made purely on the basis of this loose paper and no other

incriminating material has not been found nor any other enquiry

conducted, we have held that the date mentioned this document

27.12.2010 is to be presumed as the date on which loans and

advances were given. Now keeping this fact in mind we find that

apart from the income of Rs.3.60 cr. offered to tax, the assessee

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

also possessed the accumulated profit from unaccounted

business of trading in scrap as on the date of a giving loans and

advances on 27.12.2010. Thus if we presume that assessee had

evenly earned the income during the year from scrap trading

business and then the income for 8 months i.e. from 01.04.2010

to 30.11.2010 based on the yearly estimated income from scrap

trading business of Rs.94,14,731/-, would come at

Rs.62,76,487/-. In our considered view this amount was also

available with the assessee to give loans and advances appearing

in the seized loose paper appearing no. LPS-12 page 44. We,

therefore, hold that the assessee was having sum of

Rs.4,22,76,487/-( Rs.3.60 cr. offered in the income tax return +

profit from scrap trading business for 8 months Rs.62,76,487/-)

available for set off against the addition sustained by us at

Rs.4,38,76,255/-. Thus Rs.15,99,768/- remains to be taxed in

the hands of assessee.

sustained by us after providing the telescoping benefit of amount

available, there remains only Rs.15,99,768/- to be taxed by the ld.

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

AO for A.Y. 2011-12. To make it simple we direct Ld. AO to tax

this amount under the head of unexplained loans & advances.

allowed in favour of the assessees and that raised by revenue is

dismissed.

Now we take up the Revenue’s appeal for A.Y. 2012-13.

for interest on the unaccounted loans and advances. We find

that we have dealt this issue in the cross appeals for A.Y. 2011-

12 and have confirmed the addition for unaccounted loans and

advances at Rs.2,31,95,000/- and have also confirmed for levy

of interest on such loans and advances. In the instant appeal

also Ld. CIT(A) has taken the consistent view and directed the

Ld. AO to recalculate interest amount of Rs.2,31,95,000/-. We,

thus find no reason to interfere in the finding of Ld. CIT(A).

Thus, this ground of revenue’s appeal is dismissed.

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

finding of Ld. CIT(A) allowing the business loss of

Rs.10,27,036/- made by the Ld. AO, we find that the Ld. AO

disallowed the claim of loss of Rs.10,27,036/-. However, Ld.

CIT(A) on appreciating the fact that due to search assessee could

not concentrate on the business. However all the transactions

are duly recorded and books of account are audited and thus

allowed the business loss. We, on perusal of the records, find no

reason to interfere in the finding of Ld. CIT(A), since the Ld. AO

has not pointed out any defect in the books of account before

disallowing the business loss of Rs.10,27,036/-. The revenue

fails to succeed in ground no.2.

issue relating to interest on unaccounted loans to Rahul Ji we

find that the issue of quantum addition of Rs.3 cr. for the alleged

loans to Mr. Rahul Ji came up before us while dealing with cross

appeal for A.Y. 2011-12. After examining the facts of the case

and relevant seized material we have deleted the addition of the

alleged loan given to Rahul at Rs.3 cr. Since the very basis of

Kantilal Kataria,Ratlam Asstt.Yr.2011-12, 2012-13

computing interest challenged in the instant ground no.3 of

revenue’s appeal has been deleted by us, this ground of Revenue

becomes infructuous and deserves to be dismissed. We

accordingly, order so and dismissed ground no.3.

2012-13 are dismissed.

ANo.42/Ind/2018 for A.Y. 2011-12 is partly allowed and appeals

by the Revenue in ITANo.259/Ind/2018 for A.Y. 2011-12 &

ITANo.886/Ind/2018 for A.Y. 2012-13 are dismissed.

Order was pronounced as per Rule 34 of I.T.A.T., Rules 1963 on 02.08.2021.

Sd/- Sd/- (RAJPAL YADAV) (MANISH BORAD) VICE PRESIDENT ACCOUNTANT MEMBER

Indore; �दनांक Dated :02/08/2021 Patel/PS Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order

Assistant Registrar, Indore