DCIT vs. M/S FIZA DEVELOPERS & INTERTRADE PVT. LTD.,,

PER LAXMI PRASAD SAHU, ACCOUNTANT MEMBER:

This appeal by revenue is directed against the order of the CIT(A), Mysore dated 12.2.2013 for the assessment year 2007-08.

“Ground No.1 The learned CIT (A) erred in law and in fact in allowing the deduction u/s. 80IA of the Income Tax Amounting to Rs.63,69,196/-. Ground No.2: The learned CIT(A) erred in law and in fact in deleting the addition of Rs.14,05,549/- made by the

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Page 2 of 44 Assessing Officer u/s. 68 in respect of the unexplained credits in the name of Sri. Hyder Ali. Ground No.3 The learned CIT(A) erred in law and in fact in deleting the addition of Rs. 49,89,425/- made on account of unaccounted payments for purchase. Ground No.4 The learned CIT(A) erred in law and in fact in deleting the addition of Rs,43,47,400/- made by the Assessing Officer on account of unaccounted sales. Ground No.5: The learned CIT(A) erred in law and in fact in deleting the addition of Rs.1,75,00,000/- made by the Assessing Officer in regard to unexplained investment in purchase of property from Shri. P.A. Hamza. Ground NO.6 The learned CIT(A) erred in law and in fact in deleting the addition of Rs.3,11,10,000/- out of the addition of Rs.3,71.66,455/- made by the Assessing officer in respect of the unexplained credits in the name of NEG Micon (India) Pvt Ltd Ground NO.7 The learned CIT(A) erred in law and in fact in deleting the addition of Rs.3,62,86,704/- out of the addition of Rs.3,72,16,325/- made by the Assessing Officer on account of unexplained stock. Ground No.8 The learned CIT(A) erred in law and in fact in deleting the addition of Rs.8,75,000/- made on account of undisclosed income received from M/s. Poorva Powergenco Ltd. Ground No.9 The learned CIT(A) erred in law and in fact in deleting the addition of Rs 10.00,000/- made on account of unexplained expenditure incurred in cash. Ground No.10. The learned CIT(A) erred in law and in fact in deleting the disallowance of Rs.1.51,10,730/- out of the disallowance of Rs.1,89,61,645/-n made by the Assessing Officer on account of bogus expenses. Ground No.11. The learned CIT(A) erred in law and in fact in deleting the addition of Rs.61,00,000/-“

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2.1 A search & seizure was conducted in the premises of the assessee, its Directors and group concerns and associates on dated 17.1.2003. Accordingly notice was issued to the assessee u/s 153A of the Income-tax Act,1961 ['the Act' for short]. The copies of seized materials were provided to the assessee as per his request. In response to the notice, the assessee filed his return of income on 14.9.2009, declaring income at Rs. Nil after claiming deduction u/s 80 IA of the Act at Rs.80,31,718/- as against business income of Rs.66,55,257/-. The statutory notices were issued to the assessee. On perusal of the return, the AO observed that the assessee has claimed deduction u/s 80IA of the Act at Rs.88,83,184/-. The AO observed that the claim of deduction of 80IA of the Act is not correct as per section 80IA(5) of the Act, it was pointed out to the assessee. After that he accepted his mistake and stated that the actual claim of depreciation is Rs.30,36,926/-. For this assessment year 2005- 06 and deduction u/s 80IA was corrected to Rs.80,31,718/-. The AO observed that while calculating deduction u/s 80IA of the Act the depreciation of the wind mill and unabsorbed depreciation for the AY 2003-04 to 2006-07 has not been considered. He also observed that the assessee has not filled form No.10CCB along with the return of income filed on 14.9.2009 and an opportunity was given as per notice dated 12.10.2009 inspite of the assessee was unable to file the requisite audit report, accordingly, the assessing officer disallowed the claim of deduction u/s 80IA of the Act at Rs.88,83,184/- and added back into the total income of the assessee.

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Page 4 of 44 2.2 During the course of assessment proceedings, it has been observed by the AO that there was a credit balance in the name of creditors for the current year as well as for previous years. Out of the credit balance, Shri Hyder Ali is one of the creditors and his outstanding balance was stood at 31.3.2007 for Rs.14,05,549/-. For the verification purpose a summon u/s 131 of the Act was issued to Hyder Ali, younger brother of Shri B.M. Faroodah who was a salary employee of Shri B.M. Farookh. During the course of statement recorded of Hyder Ali, he stated that he was a proprietor of M/s. Jabal Construction and that he had taken some civil contract works for Shri B.M. Farookh in the name of Jabal Construction. He was also asked regarding the any amount due from Shri B.M. Farookh then he replied that after verifying the books I can answer and in regard to the capital, he replied that he did not invest any considerable amount worth mentioning. He was agreed to produce the books of account but not produced before the AO. The assessee further submitted that it has been accepted in regular assessment for the previous year. The assessing officer was not satisfied by the submission of the assessee. After considering the submission he added to Rs.14,05,549/- into the total income of the assessee as per para no.9 of his order.

2.3 On perusal of the seized material at page No.3 marked A1/FDITPL/53 found during the course of search on 22.2.2008 contained the details of iron ore sold to M/s. Exim Exporter, M/s. Steve Exporter and M/s. ILC Hospet amounting to Rs.43,47,440/- during the FY 2006-07. These receipts were not recorded in the books and seized materials were provided to the assessee on 13.11.2009 and no explanation was offered

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Page 5 of 44 from the assessee side. Hence, the above receipts were treated as unaccounted sales and added into the total income of the assessee. 2.4 As per para No.12 of the assessment order, Shri B.M. Farookh entered into agreement with Shri P. A. Hamza for purchase of Rs.41.9493 acres of land on 13.9.2006 at Rs.21,25,000/- per acre the agreement was valid for six months and it was extended further. On 31.8.2007 the registration of 20.00 acres of land was carried out for consideration of Rs.1,50,00,000/- at Rs.7.50 lakhs per acre and 5.825 acres of land was got registered on 4.9.2007 for a total consideration of Rs.24,12,400/-. The total payments were made to P.A. Hamza is as under:-

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2.5 From the above table total payments were made of Rs.4.50 crores out of Rs.25.00 lakhs were made by the assessee. From the ledger account filed it was noticed that Rs.2.50 crores was paid by the B.M. Faookh , Rs.25.00 lakhs was paid by assessee and rest of the amount of Rs.1.75 crores was not recorded in the books of the assessee and source was also not explained. In this regard, notice was issued to the assessee vide notice dated 11.9.2009 to furnish the details of the property. The assessee filed letter dated 9.11.2009 and stated as under:

“We have not made advance of Rs.2.75 crores. We have made a payment of Rs.25.00 lakhs only and the balance payment is from M/s Four EF Constructions. The entire payments made and sources thereon is enclosed.”

2.6 From the submission of the assessee and sworn statement of P.A. Hamza, it was found not to be true, accordingly show cause notice dated

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Page 7 of 44 1.12.2009 was issued to the assessee. No any reply against show cause notice was received by the AO from assessee side accordingly, the entire advance of Rs.1.75 crores which was not recorded in the books of account was treated as undisclosed investment and added into the total income of the assessee.

2.7 As per para No.13 of the assessment order M/s. NEG Micon India Pvt. Ltd. was a creditor for Rs.3,71,66,455/- as at 31.3.2007. But as per the statement of account furnished by the creditors (now renamed as Vestas Wind Technology India Pvt. Ltd.) the assessee has a credit balance of Rs.10,10,199/- with them in their books. The observation in this regard by the AO is as under:

“13.1 Vide his letter dated 30.06.2008, it was submitted by Shri B M Farookh as under - 'in respect of M/s Fiza Developers & Inter Trade P Ltd that the facts are as under: The amount of Rs 3,70,66,454/- shown by us is more or less is correct as M/s NEG Micon in their statement have wrongly accounted the transaction in respect of the evacuation of power arrangements entered into with them. We have by way of MOU dt 17.08.2004 had to obtain a sum of Rs 311.1 lakhs and another MOU in respect of 4.75MW another sum of Rs 6056 lakhs in all totaling to Rs 371.66 Iakhs. The treatment of this amount by M/s NEG Micon is not in order. This is an amount for the setting up of a facility for evacuation of power, which facility is in our name and we have to give them facility for a period of 25 years. The payment cannot be treated as income for any particular year and in fact the amount requires to be offered as income at the rate of 1/25 for each of the 25 years, which works out to about Rs 14.85 lakhs per year. Due to these facts, which are not brought to the notice of the accountants and the auditors the necessary entries have not been made in the books of M/s Fiza Developers & Inter Trade P Ltd. The same is to be treated in accordance with law. These facts may be noted."

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Page 8 of 44 13.3 It is seen from the above submission that Shri B M Farrokh has not disputed the correctness of any of the credit or debit entries in assessee compnay's accounts in the books of Ws NEG Micon. He has also not pointed out any missing credit/ debit entries. The only dispute is regarding the way the payment has been treated. It may be stated here that - a. If the amount of Rs 371.66 lakhs is reduced from the payments made for the contract works and shifted to the advance account being the payment for the facility provided by the assessee company for the next 25 years, as claimed by Shri B M farookh in his letter dt 30.6.2008, then the amount due from M/s NEG Micon to the assessee company becomes Rs 10,10,199/- + Rs 3,71,66,455/- = Rs 3,81,76,654/. In that case, NEG Micon will be a debtor of Rs 3,81,76,654/-in the books of the assessee, and not a creditor. b. M/s. FDITPL was doing contract works for M/s. NEG Micon and was raising bills for the works done by it. Any payment made by the principal to the contractor, if shifted to the advance account or any account other than the contract payment account, the amount receivable by the contractor towards the contract work increases and not decreases. In that case, this amount of Rs.3,71,66,455/becomes payable by NEG Micon P Ltd to the assessee company in respect of bills raised towards completed contract works. 13.4 In view of the above, the assessee was requested vide notice dated 11/9/2009 issued to the assessee to explain as to why the difference of Rs 3,81,76,654/- should not be treated as bogus credits and brought to tax for the AYs 2007-08. "As rightly pointed out by your good offices, we would like to submit that there is no difference in accounts between the NEG MICON a/cs and our books of account. The dispute is only the way NEG MICON has treated and we have treated. We have already explained why the amounts are credit in the name of NEG MICON. The difference stands clearly explained and reconciled. We have also filed the returns of income accordingly. With regard to your observation in (b), we need further elaboration and we are not in a position to understand to reply your querry. Please elaborate on the same." 13.5 Vide the notice dated 11/9/2009, it was clearly pointed out that in case the amount paid by NEG Micon P Ltd is treated as 'advance' instead of payment received towards completed works, then the amount payable by NEG Micon P Ltd towards completed contract works wilt increase and not decrease. However, instead of reconciling the difference, the assessee merely states that it has reconciled the

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Page 9 of 44 difference. Further, instead of reconciling the difference , the assessee has also requested the undersigned to elaborate the query made on the issue. In reply to the show-cause, the assessee requested for a copy of statement recorded. The reconciliation required is on the basis of assessee and not on any submission. Further, for the A Y 2005-06, in the return of income filed u/s.139 the assessee has reflected contract receipt of Rs.8,07,18,465/- and claimed TDS on it. In view of the above, it is presumed that the assessee is not in the position to reconcile the difference. Hence, the difference amount of Rs 3,81,76,654/-is treated as bogus credit and added as undisclosed income of the assessee for the AY 2007-08. (Add: 3,81,76,654/-)”

Finally the assessing officer was not satisfied and added into the total income of the assessee as undisclosed income of Rs.3,81,76,654/-.

2.8 During the course of assessment proceedings, the page no.57 of the seized files numbered as A1/FDITPL/47 dated 22.2.2008 is a letter from Mines and Geology Department addressed to the assessee company calling for the purchase and sales of iron ore during the period 2000-01 to 2006-07 for furnishing before the Hon’ble Karnataka Lokayukta. The reply of this letter was found during the search and seizure marked as page no.58 in which the assessee has prepared details of purchase and sales for AY 2003-04, 2004-05 and 2006-07 which are not tallied and it was observed that there was difference in the FY 2004-05 and 2006-07 which are as under:

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2.9 In this regard the observations of the Assessing Officer :-

14.1 In view of the above, the assessee was requested vide notice dated 11/9/2009 to state as to why the unrecorded purchase of stock of 9478 MTs and 74,432.65 MTs should not be treated as unexplained and brought to tax for AY 2005-06 and 2007-08 respectively. Further, the assessee was also requested to state as to why the average rate of the above stock purchased outside the books should not be taken ® 375/- per MT ( at the average rate of value of closing stock disclosed by you for this AY) for AY 2005-06 and at a minimum rate of Rs 500/- per MT for AY 2007-08. 14.2 In reply, the assessee vide its letter dated 9/11/2009 has asked for a copy of the seized document relied upon which was also provided on 13.11.2009. However, it is also stated by the assessee that the statement relied upon by this office is not complete and not relevant

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Page 11 of 44 for the purpose of accounting. But no any reason for the above claim has been assigned by the assessee. 14.3 In view of the above, the unrecorded purchase of iron ore has been treated as unexplained and the total amount of unaccounted purchased has been determined at the rate stated above as under AY 2005-06 : ® 375/- per MT X 9478 MT = Rs 35,54,250/AY2006-70 : ®500/- per MTX74,432.65 + Rs 3,72,16,325/- Hence, Rs 35,54,250/- and Rs 3,72,16,325/- have been treated as unaccounted purchase for the AY 2005-06 and 2007-08 and added . (Add: Rs 3,72,16,325/- for AY 2007-08.)”

2.10 From the above, for the impugned the financial year there was a shortage of 74432.65 MT as calculated above. The shortage was valued at Rs.500 per MT on the weightage average basis. Accordingly, it was observed that there was an accounted purchase value of Rs.3,72,16,325/- and added into total income of the assessee.

2.1.1 Further, the AO observed from the agreements dated 2.3.2007 with Poorva Power Genco. Ltd. and others the assessee has received Rs.8,75,000/- on 30.9.2006 and it was showing as creditors in his books of accounts in the name of Poorva Power Genco Ltd. In this regard, the assessee submitted that the amount was received on behalf of M/s. Fiza Infrastructure and the same is transferred to the amount of Fiza Infrastructure account. AO noticed that the assessee did not furnish any corroborative evidence in this regard to substantiate his submission. The assessee was one of the party of the agreement. From the seized material, it was clearly that the payment was received by the assessee. Accordingly, he added to the Rs. 8,75,000/-into the total income of the assessee.

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Page 12 of 44 2.1.2 From the seized material page 5 marked A2/FDITPL/5 seized from the asessee’s premises on 13.3.2008, the assessee had made cash payment of Rs.10,00,000/- to Shri H.B. Mohammad on 15.7.2006 which was not recorded in the books of account of the assessee and on being asked to the assessee in this regard he submitted that he had not made any payment to H.B. Mohammad, therefore, the question of addition in the hands of the assessee does not arise. The observation of the AO is as under:-

“16. As per Page-5 of the seized materials marked A2/FDITPL/5 , seized from the business premises of the assessee on 13/03/2008, the assessee had made cash payment of Rs 10,00,000/- to Shri H B Mohammed on 15.7.2006. This payment is not reflected in the regular books. Therefore, vide this office notice dated 11/9/2009 , the same was proposed to be treated as unexplained and brought to tax for AY 2007-08. The assessee was requested to give its explanation, if any.”

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Page 13 of 44 16.1 The assessee, vide its Letter dated 9/11/2009 has submitted as under:- "We have not made any payment to H.B.Mohd and therefore the question of it being taxed in the hands of FIZA does not arise." It may be mentioned here that the document relied on has been seized from the business premises of the assessee. Since the materials has been seized from the possession and control of the assessee, it is presumed that the entries are true and correct. The assessee has simply stated that it has not made any payment to H B Mohammad and had filed nya documentary evidence to disprove that the entries are not correct.

16.2 In view of the same, assessee's claim that it had not paid any amount of H B Mohd, cannot be accepted as true. Since the transactions has not been recorded in the books of the assessee and since the assessee has failed to give explanation regarding the sources for the said cash payments, the entire amount of Rs 10,00,000/- is treated as unexplained expenditure and added to the total income of the assessee. (Add: Rs 10,00,000/).” From the above submission, the AO was not satisfied & added into the total income of the assessee. 2.1.3 Further, in regard to bogus expenses entered in the books of accounts, the assessing officer observed as under:-

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“17. 1 It is noticed from the records that the last sate of iron ore was made by the assessee you on 25.9.2006. However, the above expenses have been claimed to have incurred during the period from Dec, 2006 to Jan, 2007, i.e. much after the sale is completed. It is also noticed that the assessee has not mentioned the names of the payees anywhere in the accounts or in the vouchers. 17.2 In view of the above , the assessee was requested vide this office notice dated 11.9.2009 to state as to why the above expenses totaling to Rs 1,89,61,645/- should not be treated as bogus and brought to tax for AY 2007-08. 7.3 The assessee vide its letter dated 09/11/2009 has submitted as under: "These expenses are essential expenses before sale of the iron ore. The payments pertain to the exports made earlier and therefore it cannot be called as bogus for the reason that the payments were made later. We would like to explain how the whole process of screening and crushing. These mines are also carted from Mine head to the stocking yard. Further, before the FINES are exported they are first extracted at the mine head which is called ROM (Run of Material) thereafter it under goes a process crushing and screening. This is very laborious and requires huge man power, this

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Page 15 of 44 is more so because there of stringent quality control and penal provision in the contract. In view of the genuiness of incurring the expenditure, we request your good offices to allow the expenditure in the interest of justice and equity." 17.4 The assessee claims that the expenses are essential and genuine. However, it has not filed or produced any evidence to prove that the expenses claimed by it are genuine. And instead of producing documentary evidence, the assessee only given a brief write up of its business of sale of iron ore. The issue here is the genuineness of the claim for expenses made by the assessee. As already discussed above, no where in the books or vouchers, the assessee has mentioned the names of the payees. Since, the assessee has not produced any evidence to prove the genuineness of the expenses incurred by it, the claim cannot be accepted as genuine. 17.5 In view of the above, the entire amount of expenses claimed of Rs 1,89,61,645/- is treated as bogus and disallowed. (Add: Rs 1,89,61,645/-).AY 2007-08.” The entire amount of Rs.1,89,61,645/- was added into the total income of the assessee as bogus expenses. 2.1.4 Further, on examination of books of accounts it was found from the ledger account of M/s. Manglore Transport for the AY 2006-07 that it has paid cash of Rs.61,00,000/- to M/s. Maris Cement Pvt. Ltd. on 8.6.2006 on behalf of the assessee company and it was shown in the books as advance to M/s. Maris Cement Pvt. Ltd. Further, on verification of records and observation of the AO is as under: “18.1 On verification of the records, it was noticed that:-

a) The above payment was made against iron ore purchased by the assessee from the above company. b) An amount of Rs.61,00,000/- was transferred by the assessee to M/s. Mangala Transport through cheque on State Bank of Travancore and M/s. Mangala Transport, in turn, withdrew cash from the bank and paid the same, on behalf of the assessee, to M/s. Maris Cements P. Ltd.

18.2 From the facts of the case, it is noticed that with a view to circumvent the provisions of section 269SS of the IT Act 1961, the

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assessee has issued a cheque to Mangala Transport with a direction to withdraw the money pay the same on behalf of it to M/s. Maris Cements P Ltd.

18.3 Therefore, the assessee was requested, vide notice dated 11/9/2009 to show cause why the payment should not be disallowed u/s 40A(3) of the Income Tax Act, 1961.

18.4 In reply, the assessee vide its letter dated 9/11/2009 has submitted as under:

"We have not claimed this as expenditure and the same is shown as asset in the Balance Sheet. We are enclosing the account copy for your kind perusal and necessary action." 18.5 The assessee claims that it had not claimed any expenditure and had shown the amount as asset. The assessee also claims that it has filed an account copy with the letter. Verification of the balance sheet for this assessment year reveals that the name of M/s Maris Cement P Ltd neither appears as a debtor nor its name is included in the list of advances paid for purchases ( copies of schedules- 6,7 and 8, forming part of balance sheet annexed to this order ). Therefore, the claim of the assessee is that it has not claimed as expenses and the transaction is reflected as advance in the balance sheet is not correct. It is, therefore, crystal clear that the assessee had claimed the expenses under purchase account.”

2.1.5 Accordingly, the AO disallowed as per section 40A(3) of the Act and added into the total income of the assessee.

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Page 17 of 44 Aggrieved from the order of the Ld. CIT(A), the revenue filed appeal before the Income Tax Appellate Tribunal.

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Page 18 of 44 mineral is only an inadvertent mistake instead of debiting into sunlight minerals. Submissions- The ledger abstract pertains to sun minerals were the payments through DD is made to Sunlight minerals. Further, although the CIT(A) has held that the dates of the ledger entry and the date of DD are matching it is not brought out clearly whether the DD no's match to that extent. 4. The learned CIT(A) has deleted the addition of Rs.43,47,000/- made on account of unaccounted sales to Exim Exporter, Steve Exporter and ILC Hospet. By stating that the AO has not been able to prove that the amounts reflected in seized materials are indeed incomes from the said company. Submissions- During the appellate proceedings the AR has submitted before the CIT(A) that here are no transaction between the assessee and the said company. Had this been the case, the said seized material with the names of those companies mentioned along with a narrative called "Pending" would not been found in the assesses premises. Hence, the CIT(A) has broadly ignored the fact that onus is on the assessee to explain the material found in its premises. S. The learned CIT(A) has deleted the addition of Rs.1,75,00,000/- made on account of unaccounted payments towards purchase of property from Hamza. Submissions-The assessee has not been able to prove either before CIT(A) or AO that the payments have been made through Banking Channels. 6. The learned CIT (A) has deleted the addition of Rs.3,11,10,000/- out of the total Rs.3,71,66,455/- made on account of unproved credits appearing in the name of NEG by stating that the assessee has been able to reconcile the difference between credit balance shown by the assessee and the of NEG to the extent of Rs.3 11.10 Lakhs. He has held that the defference is only one of the accounting difference between that of the assessee and NEG. Submissions-Such a huge difference between the two books cannot be merely an accounting work and the same cannot be decided unless NEG is confronted on this, which the CIT(A) has failed to do. 7. The learned CIT(A) has deleted the addition of Rs.3,62,86,704/- added as unaccounted stock out of the total addition of Rs.3,72,16,325/- by stating that the working provided by the assessee shows stock of 2656.06. Which the CIT(A) has valued at Rs.350 Per MT and confirmed the addition of Rs. 9,29,62 1/-

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Page 19 of 44 Submissions-The working provided by the AR has no credibility. Further, the onus of explaining the seized material is on the assessee, as the seized material was found in the premises of the assessee. The issue has also not been remanded to the Assessing Officer. 8. The learned CIT(A) has deleted the addition of Rs.8,75,000/- made on account of undisclosed income received from Poorva Ltd., by stating that the amount is received in the month of March and therefore it is a too short of time to the asses see to execute the project and therefore it is in the nature of advance. Submissions- The amounts were received as early as 03.10.2006 as furnished by the assesses submission before the Assessing Officer. Further, the Assessee Company is one of the parties to the agreement with Poorva Gencho and therefore, it is not acceptable that the moneys are received on behalf of Fiza Infrastructure. 9. The learned CIT (A) has deleted the addition of Rs. 10,00,000/ - made on account of unexplained expenditure by stating that this additions has been confirmed in the vey order in question. However the same has not been confirmed by the CIT(A). 10.The learned CIT (A) has deleted the addition of Rs.61,00,000/- made on account of disallowance as per sec 40A(3) by stating that the assessee has not claimed it as expenditure in the profit and loss account. It is instead reflected as asset in the balance sheet. Submissions- The AO has clearly brought out the said expenditure in reflecting in the purchase account and M/s. Mans Ltd., does not figure debtor or advances list.

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Page 20 of 44 2) CIT Vs. ACE Multitaxes Systems Pvt. Ltd., [2009] 317 ITR 207 (kar) 6. Considering the submissions from both the sides and perusing the entire material on record and order of the authorities below, the contention raised by the AO in regard to issues regarding form No.10CCB it is clear from the order of the Ld. CIT(A) and certification of the counsel of assessee side the form No.10CCB was submitted before the lower authorities, which is also placed in PB at page No.131 to 135 dated 31.10.2007. In view of this the CIT(A) rightly accepted the issue of the assessee. Further, in regard to quantum of deduction u/s 80IA of the Act, the CIT(A) has computed the deprecation on the depreciable asset on the eligible unit of Rs.16,62,552/- and allowed deduction u/s 80IA of the Act of Rs.63,69,196/- against deduction claim of the assessee of Rs.80,31,713/-. As per explanation 5 has been inserted in section 32 with effect from 1.4.2002 and in terms of this explanation, the depreciation is to be allowed irrespective of the claim by the assessee. The assessee has mentioned in form No.10CCB that the initial AY for claiming deduction u/s 80IA(4) of the Act is AY 2003-04 but is not clear what was the value of the depreciable asset of the eligible unit. The Ld. A.R. has also not provided W.D.V. of the depreciable asset for the verification of correct computation of depreciation as per the Act. therefore, as per our considered opinion we are sending back the matter for verification to the AO for the correct computation of depreciation and allow the deduction as per u/s 80IA after computation of eligible profit for deduction as per law . The assessee is directed to provide necessary details for early disposal of the case. Accordingly this ground is allowed for statistical purpose.

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Ground No.2

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7.1 On perusal of the above ledger copy there is no any purchase made by the assessee on or before 21.08.2006 on credit basis . The reading of the narration with grammatical sense as per the journal entry in the Sun Minerals the materials have already been purchased and against the assessee has paid but on perusal of ledger of both the parties there is no such entry found. If we accept the findings the CI(TA) regarding wrongly debited in the sun mineral a/c then at the year end there must be credit balance of the sunlight minerals for the same amount of Rs.49,89,425/- or after balancing amount as shown above. On the perusal of the financial statement, we could not find any credit balance in respect of Sunlgiht Minerals or any after adjustment, we note that there is only credit balance in the name of sunlight minerals of Rs.5,00,000/-. It clearly proves that there was a malafide intention of the assessee for providing wrong facts before the lower authorities. Considering the totality of facts and circumstances the ld.CIT(A) has wrongly accepted the

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Page 23 of 44 contention of the assessee. We upheld order of the AO. Accordingly, the appeal of the revenue is allowed. Ground No.3

8.1 From the above order of the CIT(A), we do not find any infirmity and he has rightly deleted the addition made by the AO after considering the submission. Accordingly, the ground No.3 raised by the Revenue is dismissed.

Ground No.4.

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Page 24 of 44 9.1 In regard to deletion of Rs.43,47,400/-, the AO has added as unaccounted sales as per seized document AL/POITPL/53 which is placed on paper book page no.145 for want of any explanation from the assessee side after giving opportunity to the assessee. The assessee submitted before the CIT(A) that it was expenditure which is for transportation of iron ore which has been accepted by the CIT(A). as under:-

“10.3 I have gone through the seized material. The seized material has three figures consisting of Rs. 14,00,000/- plus Rs.4,83,995/- (Rs.550/x 879.990) plus Rs.24,52,500/- totaling to Rs. 43,36,495/- and not Rs.43,47,400/- as held by the Assessing Officer. Below the amounts mentioned as Rs.14,00,000/- and Rs.4,83,995/- it is written as "pending" and the appellant before me claims that these are expenditure, which have not been incurred and they are not incomes as held by the AG. The AR argues that this is corroborated by the fact that the heading of this seized document states as Shifting and un-loading to plot. The claim of the appellant appears to be correct and believable. Coming to the last item being Rs.24,52,500/- the appellant argues that the same do not pertain to the appellant. The appellant also argues that in the very same page, below every item there some description is written, while no such description was found below this particular item, thereby making it clear it is not the material pertaining to the appellant. The appellant goes on to argue that the name of the exporter is written as ILC, Hospet and the department has not enquired with the said exporter to ascertain whether the said material has been exported and if yes, whether the appellant has any role to play in this. In the end, the appellant submits that the document found seized is a dumb document and the department has not been able supply the required voice to warrant an addition. I have considered the arguments of the appellant and perused the seized document and I am of the opinion that these are expenses and not the income of the appellant. The heading and the explanation appears to be that of expenditure and not that of income. Further as argued by the appellant's AR each item do contain the description as stated above. But, for the last item there is no explanation as pending or

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Page 25 of 44 otherwise. Therefore, I delete the addition of Rs.14,00,000/- and Rs.4,83,995/- as they are shown as pending on that date and there is no evidence to prove the subsequent payment or receipt. In so far as Rs.24,52,500/- is concerned, as argued by the appellant, the stand of the appellant remains undisputed and the exporter being ILC, Hospet, the role of the appellant is not proved. Thus, the addition of Rs.24,52,500/- is deleted and the ground No.12 is allowed.”

9.2 Accordingly, he deleted “the heading and the explanation appears to be that of expenditure and not that of income” After going through the submission and documents placed at page no.145 the assessee had not submitted any documents before eth AO and AO finds that it was not recorded in the books of accounts of the assessee either as sales or in any form. The CIT(A) merely deleted the addition that the AO has treated it as unaccounted sales. He has coterminous power as per the IT Act. He accepted it as expenditure. Even if it is expenditure of the assessee then it must be recorded in the books of accounts. Either case whether unaccounted sales or expenditure there should be entry in the books. It was the seized materials and marked as state above. The CIT(A)could have corrected the findings by the AO and he could have treated it as unaccounted expenditure by applying his power provided as per I.T. Act. Considering the material facts of the case. The CIT(A) has wrongly deleted the addition of Rs.43,36,495(140000+483995+245.500).

9.3 In the result, revenue succeeds on this issue upto Rs.43,36,945/-. This ground is partly allowed.

Ground No.5

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Page 26 of 44 10. This ground relates to the deletion of Rs.1,75,00,000/- against addition made an account of purchase of property from P.A Hamza, the balance amount was not recorded out of the total payment of Rs.4,50,00,000/- during the year which is clear from the assessment order as per table of para NO.12. As per table the total payments have been made to P.A Hamza is Rs.4,50,00,000/-. The CIT(A) has deleted as per para No.11.7 which is as under:- “11.7: have perused the Assessment order and the submissions made the 4 :e fact that the payments are made by various entities and persoS through proper banking channel is not disputed. This fact has also been brought out in the assessment order passed by the AO. The issue to be decided is whether or not the amount mentioned in the assessment order is accounted. Before me, the appellant has demonstrated that the above payments are made and have been accounted by the appellant. Not only this, the AR is able to demonstrate that the same has been reflected in the balance sheets filed with the AO, as well. Therefore, to consider this as unaccounted in the books is not correct. I agree with the argument of the AR that the entire amount of Rs.1,75,00,000/- is accounted and hence the addition of Rs. 175000001- is deleted.”

10.1 The ld.DR relied on the order of the AO and further retreated written synopsis. The ld.AR relied on the order of the CIT(A) and paper books. He tried to reconcile with the copy of ledger accounts provided at page No.146 to 152.

10.2 After hearing both the side and perusing the entire materials available the CIT(A) has deleted this addition by observing as quoted supra. As per him the impugned amounts have been accounted by the assessee and reflected in the balance sheet. On perusal of the balance sheet we observe that the only Rs.2,75,00,000/- has been shown under the account head of advance for purchase of property in the name of P.A

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Page 27 of 44 Hazma at schedule-B, whereas Rs. 1,75,00,000/- has not been recorded in the ledger accounts produced above of the assessee and not found in the financial statements also . The ld.AR has produced copy of ledger account of the same parties, which is as under:-

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10.3 On perusal of the above account of P.A Hamza ledger account in the books of FFME Ltd., at page No.148 the same transactions have been recorded after a year which is after the search date i.e 17.01.2008. The date of transaction on the above account i.e 1.4.2008. On going through the narrations of entry made the date and cheque numbers are tallied as observed by the AO recorded in the table in his order. The property was purchased in the FY 2006-07 then what was the need for recording the same entry in the financial year 2008-09 in the above produced account, as per our opinion , it must have been recorded in the same financial year. Hence the CIT(A) observed the entire transactions are corded in the accounts of the assessee and Balance Sheet but it is not true only Rs.2.75 crore has been recorded. No doubt that the same transactions have been recorded by the other parties either on the same financial year

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Page 32 of 44 or in the next financial year. We also observe from the CIT(A)’s order he has allowed without going into details of the copy of the ledger submitted which requires depth examinations. We also observed with the entries passed in the ledger account with narration in the name of parties and last column of the table produced by the AO in his order “in the account belong to” last coloumn and the corresponding amount in the ledger produced are not matching with the parties name. Considering the totality of facts and circumstances of the case we think it fit to send back to the AO for denovo verification. The assessee is directed to appear before the AO for substanting his case with the relevant documents and avoid to unnecessary adjournments. This ground is allowed for statistical purpose.

Ground No.6

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Page 33 of 44 income did not accrue in the year of receipt by virtue of the obligation cast on them and hence the income accrues to him on specific performance and time proportion.”

11.2 Considering the submission from both the sides and copy of ledge as relied by the ld.AR which are placed at paper book page Nos.153 to 160 for the period from 01.04.2001 to 31.03.2008 for 7 years and copy of agreements produced at page No.162 to 175 and seized material at page no.176.

11.3 We observe that the amount for the assessment year 2004-05 there was NIL closing balance as per the assessee’s ledger account.. The entries made in the ledger account are for services provided to the NEG Micon (India) Pvt. Ltd., in the different form which is clear from ledger and the same or different types of the services have been rendered in the assessment year 2005-06 and 2006-07 also. The agreement has been made on 17.8.2004, as per agreement clause No.4, the assessee has to receive 25% of Rs.311.10 lakhs which comes to Rs.77,77,500/- but we did not find any entry of the same amount and the balance amount are also not found as per the scheduled date on payments as per clause NO.04. The CIT(A) has upheld that it was a payment for Rs.25 years, therefore, income has not been considered in the impugned assessment year. The Ld. A.R. of the assessee could not brought any material so that it can be proved that the amount was received for 25 years. The assessee has provided the different type of services as per the entry made in the ledger but not found anywhere that the amount has been received for 25 years. On comparison of ledger accounts produced, arguments and findings of the CI(TA) there is no matching/similarity. Therefore,

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Page 34 of 44 considering the facts and findings recorded by the CIT(A) we reject the findings of the CIT(A). There is difference in the copy of ledger provided of the NEG Micon ( India) Pvt. Ltd. but the AO has not given the details whether the difference noted are only for the current years or also carry forwarding from the previous year. Further on perusal of the copy of ledger account provided before us at page No.159 there is opening balance of Rs. 2,23,93,765/-. Before the CIT(A) the assesse has also accepted that there may be difference in the account balance. The opening balance brought forward from the previous year cannot be added in the impugned AY. We rely on judgment of CO-ordinate bench of Ahmedabad In ITA No. 1803/Ahd/2008 for assessment year 2005-06 order dated 31.12.2010 in case of Rajeevkumar N. Bodawal, Surat Vs. Deptt of Income Tax Respectfully following the above judgement, the assessee gets relief to the extent of Rs.2,23,93,765/- from the total addition of Rs.3,81,76,654/-. Thus, Rs.1,57,82,889/- is confirmed from the total additions. These grounds are partly allowed.

Ground No.7 Unaccounted stock:

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Page 35 of 44 and as per CIT(A)’s order the purchase is 60545.41 Mts for the impugned assessment year. The resultant difference is 23134.25 Mts. The CIT(A) should have enquired the above differences. The details of purchases filed before the CIT(A) was not filed by the assessee during the course of assessment proceedings. If he had information regarding purchase of material during the course of assessment then why the assessee did not furnish the same before the AO. The information furnished to the government department cannot be brushed aside. In this regard, no fruitful arguments was done from the Ld. A.R’s side. The ld.AR could not controvert the copy of the seized material found which was submitted before the Government Department . The assessee has taken the opening stock as per the disposing the matter for the assessment year 2005-06, there is no information in regard to the AY 2006-07 whether assessment has been carried out or not. Accordingly, we calculate the quantity of closing stock as under:-

12.1 As per assessment order for AY 2005-06 submitted by the assessee before the CIT(A) : Opening Stock (1/4/2005) 41,098.46 Opening purchase 41462.19 TOTAL 82560.65 Less: Sales -20000.00 Closing stock 30/03/2006 62560.65

Opening stock (01/04/2006) 62560.65 Add Purchase as per AO’s order 37411.16 Total Iron Ore available for sale 99971.81

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Page 36 of 44 Less Sales of iron ore 133306.00 Shortage of stock during the year 33334.19 Rate as adopted by the AO Rs.500 per Mts 33334.19 x 500 = 1,66,67,095.

12.2 As per the above calculation, the addition should be restricted to Rs.1,66,67,095/- . Accordingly, this ground is partly allowed.

Ground No.8:

13.1 The AO has not accepted the above submissions and treated it as unaccounted income. The CIT(A) took view that the agreement was done

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Page 37 of 44 on 2.3.2007, which is very short period to complete the work for any concern. We observe that the submissions made by the assessee as quoted supra and findings of the CIT(A) are quite different. The assessee has mentioned that the amount has been transferred to Fiza Infructure account but he has not produced the actual date of transfer and evidence in this regard. The assessee has produced the ledger account of Poorva Power Genco which is placed at page No.177 and the closing balance is tallied with the figure shown in the balance sheet and no any transfer entryfound in the ledger a/c enclosed . Therefore, we consider to fit sending back to AO for the verification as per submissions made before the AO as quoted supra. In the result the ground is allowed for statistical purpose. Ground No.9 14. It is regarding deletion of Rs.10,00,000/- as per CIT(A)’s order it is double addition. The AO has added on the same seized material A2/FDITPL/5 at para No.8 and para No.16 in regard to cash payment to Shri H.B. Mohammad of M/s. Alpine resources on 15.7.2006. As per the order of AO it has been added twice to which the CIT(A) has rightly deleted at para No.16.2. Accordingly, we dismiss the ground No.9.

Ground No.10 : 15. Deletion of Rs.1,51,10,730/- on account of bogus expenses: The observation of the AO in this regard has been cited supra and the CIT(A) has deleted this issue by holding as under:-

“17.5. I have considered the arguments of the appellant. In so far as the expenditure incurred on 31.05.2006 and on 31.03.2007, amounting to Rs. 12,56,365/- and Rs. 36,05,280/- deserves to be allowed as there

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Page 38 of 44 are no contrary finding by the AO and they appear to have been incurred much earlier to the last date of export, as held by the AO.

17.6. Thus, the expenses stated to have incurred on 11.12.2006 and 15.01.2007 amounting to Rs. 70,00,000/- and Rs. 75,00,000/- need to be exclaimed. The appellant is in the business of iron ore and to export the iron ore, the same has toundergo a process of crushing, casting, sieving and screening to make it saleable. The question therefore arises is the timing of incurring of expenditure and its accounting treatment. The incurring of expenditure is first and the appellant can delay the accounting of these expenditure, provided they are incurred and the appellant had the source to incur such expenditure on the date as admitted by the appellant. Therefore, the appellants contentions that the amounts have been paid on 15.01.2007 is not acceptable and is not believable statement. 17.7. The appellant has cash balance of Rs. 1,06,49,085/- only as at 25.09.2006 (being the last date of export) as mentioned by the AO in his assessment order. The expenses which the appellant can incur cannot be more the cash balance available on the day of export. Having said this the total expenditure claimed by the appellant is Rs. 1,45,00,000/- while the cash balance is only 1,06,49,085/-. The statement of the appellant that it has spent Rs. 1,45,00,000/- is false and not believable. As a result of above discussion, out of the expenses of Rs. 1,45,00,000/- a sum of Rs. 1,06,49,085/- is allowed and the balance Rs. 38,50,915/- is confirmed. Total relief Rs. 1,15,10,730/- (Rs. 12,56,365/- + Rs. 32,05,280/- + Rs. 1,06,49,085/-). AR stated that there is no negative cash balance subsequently on account of this. AO is directed to verify this and bring to tax if any negative cash arises.

15.1 The Ld. D.R. relied on the order of AO and submitted that the CIT(A) has wrongly allowed the issue without going into the findings recorded by the Assessing Officer. The assessee has not produced any evidences even the cash payments made and recipient’s name was also not disclosed. The last date of export is 25.9.2006 and the assessee has made payment in cash much latter of the export. The AO has doubted the genuineness of the expenditure incurred by the assessee.

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Page 39 of 44 15.2 The Ld. A.R. relied on the order of Ld. CIT(A) and also reiterated the submissions made before the lower authorities. The expenditure incurred by the assessee is genuine expenditure. The assessee has to maintain good quality of materials for export. The CIT (A) has rightly considered the issue on this ground and accordingly he has allowed.

15.3 After hearing both the sides and perusing the order of authorities below, the CIT(A) has deleted the addition only on the submissions made by the assessee. He has accepted the assessee’s submission to the extent of cash availability ignoring the findings of the AO. The AO has not accepted the submissions of the assessee for want of evidence. The assessee could not produced any evidence in support of his claim. Further, on perusal of the CIT(A)’s order at para No.17.3 he has observed as under:- The appellant submits the incurring of expenditure is not questioned by the AO and has disallowed due to cash expenditure.In this regard, he goes on to argue that the expenditure of this kind has to be incurred in cash only and there can be no expenditure in cheque due to its nature and remoteness of the place of incurring the expenditure.

15.4 As per assessee’s submissions at para No.17.1 of the CIT(A)’s order the payment made to Hebber and associates was against the invoice raised and paid through banking channel. There are contradictory submission before the CIT(A). On the one hand, the assessee has paid against the invoice through cheque and other hand submitted that this kind of expenditure is incurred in cash only due to nature and remoteness of the place of incurring the expenditure. Even the assessee has not proved the name of the recipients and recipients have offered it for tax computation purpose also. There must be genuineness of

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Page 40 of 44 expenditure claimed in the profit and loss account. Merely statistical data as calculated in percentage basis that it is very low is not sufficient. The CIT(A) has himself observed at para no. 17.6 that “Therefore, the appellants contentions that the amounts have been paid on 15.01.2007 is not acceptable and is also not believable statement” further at para No. 17.7 “ statement of the appellant that it has spent Rs. 1,45,00,000/- is false and not believable” clearly shows that the CIT(A) has not accepted the submissions of the assessee and this finding the appellant has not filed any appeal or rectification. As per para no. 17.3 as quoted supra stated that this kind of expenditure is incurred in cash only whereas he has paid in cheque against the invoice raised by Hebbr and associates After considering the findings of the AO and CIT(A)’s order at para No.17.6 and 17.7 the contentions of the assessee is not acceptable and not believable for cash payments as recorded by AO in spite of the availability of cash balance to the extent of Rs 1,06,49,085/- because of the non production of evidence and name of the recipients, if the availability of cash argument is accepted the other item of the entry in the books of accounts will effect if the cash balance is calculated day wise but at end cash balance will not effect.. Before us, the revenue has questioned the deletion of Rs.1,51,10,730/- which has been arrived as under. 1) To the extent of cash balance available 1,06,49,085 2) 31.5.2006 cash paid for screening charges 12,56,365 3) 31.3.2007 payment to Hebbar associates 32,05,230 Total 1,51,10,730/-

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Page 41 of 44 15.5 Out of the above, the payment made to Hebbar & Associates is accepted because it was paid through banking channel against the invoice issued and rest amount of Rs 1,19,05500/- (1,06,49,085/-+12,56,365/-) deletion is not accepted because the genuineness of the payments have not been proved by the assessee at any stage of the proceedings. In the result, the ground raised by the revenue is partly allowed.

Ground No.11:

16.1 The Ld. A.R. relied on the order of CIT(A) and submitted that the ledger copy of M/s. Maris Cement (P) Ltd. is enclosed herewith at P.B. No. 200 & 201. According to the ledger account there is closing balance as on 31.3.2007 of Rs. 61,00,000/- and appearing as advance which has been used for purchase as on 02.04.2007 in next financial year and no expenditure has been claimed by the assessee in the profit & loss account, therefore, section 40A(3) will not apply.

16.2 Considering the rival submissions, we found substance in the submissions of the Ld. D.R. We also observe from the balance sheet schedule no.06-07-08 that there is no any amount is appearing as debtor in the name of M/s. Maris Cement (P) Ltd. The assessee has also

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Page 42 of 44 accepted that it has not claimed as expenditure in the profit & loss account and submitted that it is appearing in the balance sheet of advance but not found on the balance sheet. The assessee has first paid to Mangalore Transport through cheque of State Bank of Travancore and Mangalore Transport withdrew cash from bank and paid to M/s. Maris Cement (P) Ltd. The AO on verification of record found the amount was paid towards purchase of iron ore from M/s. Maris Cement (P) Ltd. As per AO’s order “a. the above payment was made against iron ore purchased by the assessee from the above company . b. an amount of Rs. 61,00,000/- was transferred by the assessee to M/s Mangla Transport through cheque on State Bank of Travancore, and M/s Mangla Transport, in turn, withdraw cash from bank and paid the same , on behalf of the assessee, to M/s Maris Cements P Ltd. ” This observation has not been controverted by the Ld. CIT(A) as well as by the assessee. It is fact that the amount has been withdrawn/transferred to one party, therefore, the corresponding effect should also be made in double entry system. The balance sheet has been certified by an accountant as defined in section 288 of the I.T. Act. If the amount is not appearing in the balance sheet, then there must be effect in the profit & loss account of this amount. The Ld. A.R. of the assessee has not demonstrated through the financial statement that where is the effect of this entry has been given either in Balance Sheet or in Profit and Loss Account except relying on the copy of the ledger account placed on paper book pages Nos.200 to 201. On going through the order of the AO that the amount has been paid by way of cash for purchase of iron ore. Considering the totality of facts and circumstances of the case we think fit to remit this issue for the

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Page 43 of 44 verification that where it has been recorded in the financial statements and decided this issue denovo as per law. 17. In the result, the ground of appeal is allowed statistical purposes.

Order pronounced in the open court on 29th July, 2022.

Sd/- Sd/- (N.V. Vasudevan) (Laxmi Prasad Sahu) Vice President Accountant Member

Bangalore, Dated 29th July, 2022. Vms

Copy to:

Asst. Registrar, ITAT, Bangalore.

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Page 44 of 44 1. Date of Dictation ………………………………………