THE PRINCIPAL COMMISSIONER OF INCOME TAX-3 vs. PRAVIN VIRCHAND SHAH PROP. M/S ASHIRVAD TRADERS

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 334 of 2022 ========================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX-3 Versus PRAVIN VIRCHAND SHAH PROP. M/S ASHIRVAD TRADERS ========================================================== Appearance: MR MR BHATT SENIOR COUNSEL WITH MR KARAN SANGHANI FOR M R BHATT & CO.(5953) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA

Date : 04/07/2022

ORAL ORDER (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1.Heard learned Senior Advocate Mr. Manish R. Bhatt assisted by learned advocate Mr. Karan Sanghani for M.R. Bhatt & Co. 2.This Tax Appeal is directed against the order dated 28.01.2022 passed by the Income Tax Appellate Tribunal, “B” Bench, Ahmedabad (For short “the Tribunal”) in IT(SS)A No. 180/AHD/ Page 1 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 2005 for the block period from 01.04.1996 to 06.06.2002 under section 260A of the Income Tax Act, 1961 (For short “the Act”). 3.The Revenue has proposed the following substantial

questions

law

for consideration : "(A) Whether on the facts and in the circumstances of the case and in law, the Appellate Tribunal has erred in deleting the addition of Rs.20,42,331/- being unaccounted sale proceeds of Jeera, by ignoring the solemn statement of accountant and documentary evidences in the form of seized material?" (B) "Whether on the facts and in the circumstances of the case and in law, the Appellate Tribunal has erred in deleting the addition of Rs.9,10,800/- being unrecorded sale proceeds of Isabgul, by ignoring the solemn statement of accountant and documentary evidences in the form of seized material?". (C) "Whether on the facts and in the circumstances of the case and in law, the Appellate Tribunal has erred in deleting the addition of Rs. 20,98,800/- being unaccounted proceeds of Jeera sold outside the books of account, by ignoring the solemn statement of Page 2 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 accountant and documentary evidences in the form of seized material?" (D) "Whether on the facts and in the circumstances of the case and in law, the Appellate Tribunal has erred in deleting

the

addition

of Rs.3,61,77,994/- being the purchase price of 567875 kg of Jeera, not recorded in the regular books of account of the assessee, by ignoring the solemn statement of accountant and documentary evidences in the form of seized material?" (E) "Whether on the facts and in the circumstances of the case and in law, the Appellate Tribunal has erred in deleting the addition of Rs. 29,66,094/- being unrecorded purchase of Isabgul, by ignoring the solemn statement of accountant and documentary evidences in the form of seized material?" (F) "Whether on the facts and in the circumstances of the case and in law, the Appellate Tribunal has erred in deleting the addition of Rs. 9,549/- on account of excess stock of 6 bags of Isabgul, by ignoring the solemn statement of accountant and documentary evidences in the form of seized material?" (G) "Whether on the facts and in the circumstances of the case and in law, the Appellate Tribunal has erred in deleting the addition of Rs.1,45,260/- made on account of excess stock of Tarbuj seeds, by ignoring the solemn statement of accountant and documentary Page 3 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 evidences in the form of seized material?" (H) "Whether on the facts and in the circumstances of the case and in law, the Appellate Tribunal has erred in deleting the suspended and protective addition of Rs.1,41,90,841/- made on account of unexplained and hidden stock of Jeera, by ignoring the solemn statement of accountant and documentary evidences in the form of seized material?" (I) "Whether on the facts and in the circumstances of the case and in law, the Appellate Tribunal has erred in deleting the suspended and protective addition of Rs. 2,27,77,749/- made on account of unexplained stock of Jeera of 320814 kg found during the course of search, by ignoring the solemn statement of accountant and documentary evidences in the form of seized material?" (J) "Whether on the facts and in the circumstance of the case and in law, the Appellate Tribunal has erred in deleting the addition of Rs.1,20,06,548/-, by ignoring the solemn statement of accountant and documentary/evidences in the form of seized material?" (K) "Whether on the facts and in the circumstances of the case and in law, the Appellate Tribunal has erred in deleting substantial addition of Rs. 19,87,756/- made on account of excess stock of Caster Seeds, by ignoring the solemn statement of accountant and documentary evidences in the form of Page 4 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 seized material?" 4.The assessee is a proprietor of M/s. Ashirvad Traders engaged in the business of trading on commission basis. A search under section 132 of the Act was carried out on 06.06.2002 in group of cases and the assessee was one of the person in group. 5.The notice under section 158BC of the Act was issued and in response thereof assessee file return of income for the block period from 1.4.1996 to 6.6.2002 declaring undisclosed income of Rs. 7,95,000/-. 6.The Assessing Officer by assessment order dated 30.06.2004 passed under section 158BC(c) of the Act made assessment at Rs.4,61,93,130/- after making addition on different accounts. Being aggrieved, the assessee preferred an appeal before the Page 5 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 CIT(Appeals) who deleted all the additions made by the Assessing Officer. The Revenue therefore, preferred appeal before the Tribunal challenging the order passed by the CIT(Appeals). The Tribunal by the impugned order dismissed the appeal. 7.Question(A) pertains to addition made by the Assessing Officer on account of unaccounted sale proceeds of Jeera of Rs.20,42,331/-. The Assessing Officer held that during search various stock of agriculture products was found which could not be identified and bifurcated and the assessee sold the goods without recording the same in the books. It was also found during the course of search that the seized bills did not bear address, sales tax number and total sales of 434 bags of Jeera were reflected in such bills and evidences of purchases and sales were destroyed once they were squared up and sales Page 6 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 were not reconciled with books. i) The CIT(Appeals) however, deleted the addition holding that the assessee only earned commission income on such sales and as such, no addition of total sale proceeds of Jeera as reflected in such bills, could have been made by the Assessing Officer treating the same as unaccounted sales of the assessee. CIT(Appeals) after considering the submissions of the assessee deleted the additions. ii) The Tribunal after hearing both the learned Departmental Representative as well as learned Authorised Representative of the assessee and after considering the factual aspects and the submissions and materials and information with respect to the seized material held that the assessee was engaged in the business of selling the goods on Page 7 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 commission basis and has offered commission received on sale of 434 bags of Jeera. The Tribunal also considered that reconciliation provided by the assessee of the entries with the names of the parties, sale quantity etc. and agreed with the categorical findings of fact given by CIT(Appeals) and came to the conclusion that the addition of entire sale proceeds instead of the commission income failed on merits and in law and thereby upheld the decision of CIT(Appeals). 8.Question (B) pertains to addition made by the Assessing Officer on account of unrecorded sale proceeds of Isabgul of Rs.9,10,800/-. The Assessing Officer held that the assessee was found to have sold 506 bags of Isabgul without recording the sale proceeds and at the relevant time, the average sale price of the commodity was Rs. 24 per kg and therefore, Assessing Officer assessed the Page 8 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 unaccounted sale proceeds of the assessee on this count to be Rs. 9,10,800/-. i) The CIT(Appeals) considered the reconciliation statement provided by the assessee and the fact that 784 bags were not considered of the godown at 118 APMC Unava. CIT Appeals also considered the goods received from the farmers of 1193 kgs lying in the godown of the assessee. Considering the fact even in the proceedings under section 264 of the Act, department accepted that stock of Isabgul is not required to be seized as it is in line with the book stock, CIT(Appeals) deleted the additions made by the Assessing Officer. ii) The Tribunal after considering the submissions made on behalf of both the sides held that the assessee has reconciled the quantity and given the details of the farmers Page 9 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 whose goods were lying. The stock was duly reconciled in the paper book filed before the Tribunal and the balance stock covered the adat commission disclosed in respect of the quantity of goods that is alleged to have been sold as sale made on behalf of the farmers and the quantity of goods lying with the assessee even on the date of search. The Tribunal held that the sale computed by the Assessing Officer is without any reference to the seized material and accordingly, confirmed the order passed by the CIT(Appeals).

9.Question(C) pertains to addition made by the Assessing Officer on account of unaccounted proceeds of Jeera sold outside the books of account of Rs. 20,98,800/-. The Assessing Officer during the assessment proceedings found that the assessee during the Financial Year 2002-2003 has made sale of Jeera Page 10 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 weighing 23,320 kg at the rate of Rs. 90 per Kg which was not accounted in the books of account which fact was admitted by the accountant of the assessee Shri Mahendra Amablal Patel. Accordingly, The Assessing Officer made addition of Rs.20,98,800/- as undisclosed income of the assessee. i) CIT(Appeals) deleted the addition made by the Assessing Officer by observing that addition was made on the basis of Statement of the Accountant of the assessee recorded at the time of search which was subsequently retracted by filing affidavit before the competent authority. CIT(Appeals)further held that the assessee has reconciled the total quantity of Jeera found and made disclosure of commission income on such sale of Jeera and therefore, CIT(Appeals) deleted the additions made by the Assessing Officer. Page 11 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 ii) The Tribunal after hearing both the sides found that the addition for unaccounted sale of Jeera was made by the Assessing Officer on the basis of admission by the accountant of the assessee. However, such statement was later on retracted. The Tribunal after referring to the affidavit filed by the accountant found that the assessee has been able to reconcile the quantity of Jeera and commission income earned on such sale. The Tribunal observed that the CIT(Appeals) while releasing the goods seized has held that the assessee is engaged in selling various commodities of farmers on commission basis and the assessee has already disclosed the commission income. The Tribunal therefore concurred with the findings of the CIT(Appeals).

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 being the unrecorded purchase of 567875 kg of Jeera. The Assessing Officer from the seized material which includes Vepar Khatu found that the assessee had purchased 15,371 bags of Jeera weighing 845405 Kgs of Jeera whereas the assessee had recorded purchase of Jeera at 277530 Kg only and accordingly balance 567875 Kg of Jeera remained unaccounted which was valued at Rs. 4,03,19,125/-. By taking average cost of Jeera at Rs. 71 per Kg., the Assessing Officer has given set off to the extent of Rs. 41,41,131/- on account of addition made from unrecorded sales and added sum of Rs. 3,61,77,994/- to the total income of the assessee. i) CIT(Appeals) found that the chart produced by the assessee regarding the amount of purchases of the seized material to be correct.

CIT(Appeals)

held

that

if duplications etc. are excluded, the assessee Page 13 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 has purchased 5879 bags which are duly recorded in the books of accounts which are also accepted in the proceedings under section 264 of the Act and therefore, CIT(Appeals) concluded that there is no justification for making addition on account of unrecorded purchase by the Assessing Officer. ii) The Tribunal after considering the reconciliation statements and materials placed before the Assessing Officer and CIT(Appeals) held that so far as the quantity found and recorded in the books with that of the disclosure made has been reconciled. With regard to the grievance of the Revenue that purchase price of 5,67,875 Kg of Jeera not entered in regular books of accounts, the Tribunal held that the disputed quantity has already been reconciled and accounted for in the books of accounts and the difference in Page 14 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 quantity was on account of duplicate entries for same bags of Jeera in different seized material. The Tribunal held that income being commission on the bags of Jeera is covered under the disclosure of unaccounted income made by the assessee. The Tribunal considering the reconciliation chart placed before it with the seized records and entries passed in the books and the amount of the commission disclosed in the return of income as undisclosed income, held that there is no infirmity in the findings of the CIT(Appeals). 11. Question (E) pertains to addition made by the Assessing Officer on account of unrecorded purchase of Isabgul of Rs. 29,66,094/-. The assessee was found to have indulged in unaccounted trade of Isabgul to the extent of 2436 bags which was quantified to be 182700 Kg. The Assessing Officer worked Page 15 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 out and treated the amount of Rs.36,76,894/- as unexplained investment made by the assessee. Out of this, the sale proceeds of 506 bags being Rs.9,10,800/- was taxed by the Assessing Officer under section 69 of the Act. i) CIT(Appeals) after considering the assessment order and considering the reconciliation of the stock position furnished by the assessee found that in the working of 4319 bags seized, goods belonging to the farmer were not included and accordingly CIT(Appeals) worked out the actual stock including that of the farmers and arrived at conclusion that there were in all 5512 bags of 413388 kgs and not 4494 bags. CIT(Appeals) concluded that there was some mistake in stock staking during the search proceedings insofar as the stock in the front go-down kept in open may not have Page 16 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 been taken into account. The Tribunal thus held that there was no excess stock found in addition to the stock that was belonging to the farmers as found during the course of proceedings under section 264 of the Act and further held that the stock has been reconciled by the assessee. ii) The Tribunal after considering the submissions made by both the sides held that there is no additional stock found. It was held that no material is brought on record to substantiate the unaccounted purchase of the assessee. It was further held that even the details of the farmers whose commodity is lying and who have given confirmation have not been contradicted even though these details were placed well in advance before the Assessing Officer in the year 2003 and the order is passed in 2004. The Tribunal therefore, in absence of any contradictory Page 17 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 material on record concurred with the findings of the CIT(Appeals). 12. Question (F) pertains to addition made by the Assessing Officer on account of excess stock of 6 bags of Isabgul of Rs. 9,549/-. The Assessing Officer found that unrecorded purchase of Isabgul was 1930 whereas the excess stock of Isabgul was found to be 1936 and thus there is a difference of 6 bags and accordingly the Assessing Officer made addition of Rs. 9549/- under section 69 of the Act. (i) CIT(Appeals) held that there was no excess stock found in addition to what was belonging to the farmers which was found during the course of proceedings under section 264 of the Act and deleted such additions. Page 18 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 ii) The Tribunal after considering the detailed reconciliation of the stock and the findings arrived at by the CIT(Appeals) about the quantity of Isabgul, confirmed the order passed by the CIT(Appeals). 13. Question (G) pertains to addition made by the Assessing Officer of Rs.1,45,260/- on account of excess stock of Tarbuj seeds. During the search in the premises of assessee, 16140 Kg of seeds were found from the premises which were claimed to be belonging to some farmers. The Assessing Officer valued such stock as on the day of search at the rate of Rs.9 per Kg and made addition of Rs.1,45,260/- to the income of the assessee under section 69 of the Act. i) CIT(Appeals) held that the stock involved is 16140 Kgs and the same belongs to the farmers received by the assessee on “Vasiyati Page 19 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 mal” for commission account. CIT (Appeals) held that there is no justification in making the addition as the goods belonged to the farmers received as Vasiyati Mal and deleted the additions made by the Assessing Officer. ii) The Tribunal after considering the submissions made by both the parties, in absence of any contrary material held that the contention of the Revenue that Tarbuj seeds stock is excess stock of the assessee fails on merits. The Tribunal further observed that the department has already accepted the fact that the assessee is engaged in the sale of goods on commission and accordingly the Tribunal upheld the order passed by the CIT(Appeals). 14. Question (H) pertains to suspended and protective addition of Rs.1,41,90,841/- made Page 20 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 on account of unexplained and hidden stock of Jeera. The Assessing Officer found that there was total detected unaccounted purchases of 567875 Kg of Jeera and total detected unaccounted sale of 23329 Kg. The Assessing Officer thereafter incorporating the said figures with the accounted turnover, held that the assessee should have stock of 668031 Kg of Jeera as on 5.6.2002. The Assessing Officer held that as against this, the total stock found at the time of search was 468160 Kg and thus the stock was falling short to the extent of 199871 Kgs. The Assessing Officer valued such stock of 199871 Kg of Jeera at the rate of Rs. 71 per kg and treated Rs. 1,41,90,841/- as the excess stock removed and kept hidden by the assessee and added the same on protective basis to the income of the assessee.

i) CIT(Appeals) held that except for the Page 21 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 allegations contained in the assessment order that goods were removed from the go-down, nothing is brought on record to conclusively establish such fact. It was held that failure on part of the authorised officer to count the stock while putting the seal and subsequent allegation based on news report without any evidence cannot justify such conclusion of removal of goods. CIT(Appeals) accordingly deleted the protective addition of Rs. 1,41,90,841/- made by the Assessing Officer. ii) The Tribunal held that the department has not brought any evidence on record to prove that the assessee has removed the stock from the go-down. The Tribunal also held that even the stock found in search were duly reconciled and the commission on the sale of such goods is already offered to tax and that the said amount is accepted by the Page 22 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 department. The Tribunal therefore, confirmed the findings arrived at by the CIT(Appeals). 15. Question (I) pertains to protective addition of Rs. 2,27,77,749/- made on account of unexplained stock of Jeera of 320814 kg found during the course of search. The Assessing Officer held that the actual stock of Jeera found on the date of search was 468160 Kg as against the accounted book stock of Rs.147346 Kg. The Assessing Officer therefore held that on the date of search, stock of 320814 Kgs was found in excess of the book stock which was valued at the rate of Rs.71/- per kg, totalling to Rs. 2,27,77,794/-.

The

Assessing

Officer therefore, held that there is undisclosed income of the assessee on account of the undisclosed investment and added the same on protective basis to the income of the assessee. Page 23 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 i) CIT(Appeals) held that the purchase of 15371 bags as held by the Assessing Officer is not correct and the correct quantity of purchase is 7388 bags which is duly recorded in the books of accounts. Similarly, unrecorded sales for which addition has been made is on account of commission business and for that there cannot be any effect in the stock of the assessee. It was further held that the assessee in the course of search proceedings as well as in the assessment proceedings explained that the stock lying with him included stock belonging to the farmers.

CIT(Appeals)

taking

into consideration overall facts of the case, accepted the reconciliation of stock as furnished by the assessee and deleted the protective addition of Rs.2,27,77,794/- made for the excess stock of Jeera. Page 24 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 ii) The Tribunal after considering the rival submissions held that the quantity of Jeera found in the go-down was much more than what is stated in the statement and the quantity of Jeera is already reconciled by the assessee and therefore, the addition made by the Assessing Officer was held to be unjustified confirming the order passed by the CIT(Appeals).

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 after decoding the recordings on such diary, it can be clearly identified that these amounts which pertains to unexplained cash credit and unexplained interest to the tune of Rs.1,20,06,368/- are taxable under sections 68 amd 69C of the Act and are assessable under section 158BB of hte Act. The Assessing Officer held that these transactions are undisclosed income of the assessee for which addition was made on protective basis because a composite addition was made on the unrecorded purchases made by the assessee utilizing these funds. i) CIT(Appeals) held that there is nothing on record to indicate that the entries in diary represent cash received by the assessee and therefore, the question of taxing the same as cash credit simply does not arise. The CIT(Appeals) therefore, held that there is no question of the protective addition as held Page 26 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 by the Assessing Officer and deleted such addition made by the Assessing Officer. ii) The Tribunal held that there is no inconsistency in the finding of the CIT(Appeals) and accepted the findings of the CIT(Appeal) being based on facts. 17. Question(K) pertains to addition made by the Assessing Officer of Rs. 19,87,756/- on account of excess stock of Caster Seeds. During the search, stock of castor seeds to the tune of 466875 Kg was found from the various go-downs owned or possessed by the assessee. During the course of proceedings also, the assessee owned up the stock of 10705 Kg of Castor kept in Godown No. 118 APMC,Unjha belonging to one M/s. Manilal Prabudas. Thus the total stock of castor found during search was 477580 Kg. The Assessing Officer found that the opening Page 27 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 stock of castor as per the books of account as on 1.04.2002 was 318575 Kg and therefore, there was excess stock of 159005 Kg. The Assessing Officer held that though it is claimed by the assessee that some farmers of Rajasthan and North Gujarat have placed the castor seeds with the assessee for trade, the stock position cannot be reconciled in any manner. The Assessing Officer therefore, treated the excess stock of castor seeds weighing 159005 Kg valued at the rate of Rs. 12.50 per Kg, totalling to Rs. 19,87,562/- as unaccounted investment and added the same to the income of the assessee. i) CIT(Appeals) held that plea taken by the Revenue that there may be some mistake in stock taking, during the search proceedings insofar as the stock in front of the go-down kept in open may not have been taken is merely a presumption. CIT(Appeals) therefore, Page 28 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 sustained the addition of Rs. 19,87,756/-. It was found that the stock found at the time of search belonged to three concerns namely, M/s. Ashirvaci Trader, M/s. D. Virchand & Co. and M/s. Hasmukhlal Chandrakant & Co. and therefore, the same could not be segregated and to be treated as belonging to the three concerns and if any undisclosed stock found or detected, the same had to be divided equally amongst the three concerns. CIT(Appeals) therefore, held that addition of Rs. 19,87,756/- which has been sustained should be equally divided and considered in the hands of the above-said three concerns. CIT(Appeals) also held that even if the addition is sustained, the same may be considered as application of undisclosed income shown in the return filed under section 158BC filed in three cases separately. Page 29 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 ii) The Tribunal after considering the submissions on both the sides found that the addition apportioned in respect of all the three assessees is after taking into account the over all aspects of facts explained and on the basis of reconciliation of the commodities. The Tribunal held that the stock were considered to be of all the three concerns together which was accepted by AO and the reconciliation of stock found and recorded in the books were considered of all the concerns. The Tribunal held that such findings of fact arrived at by the CIT(Appeals) requires no interference.

(K) are based on findings of fact and therefore, the same are not required to be Page 30 of 31

C/TAXAP/334/2022 ORDER DATED: 04/07/2022 considered. 19. In view of above, we are of the opinion that no question of law much-less any substantial question of law proposed or otherwise arises from the impugned order of the Tribunal. Appeal is accordingly dismissed. (N.V.ANJARIA, J) (BHARGAV D. KARIA, J) RAGHUNATH R NAIR Page 31 of 31