KARTIKEYAS MANGANESE & IRON ORES PRIVATE LIMITED,BELLARY vs. DCIT, BANGALORE

Per Bench : These are four appeals filed by the assessee for Assessment Years

2008-09 to 2011-12 arising out of the common order of the

Commissioner of Income Tax (Appeals)-11, Bangalore dt.10.03.2015. The

grounds of appeal raised in all these appeals are mostly similar and

2 ITA Nos. 832 to 835/Bang/2015 therefore these appeals were heard together and are disposed off by

way of this consolidated order for the sake of convenience.

2.1 The assessee (hereinafter referred to as ‘KMIORE’) is a

company engaged in the business of iron ore mining. A search and

seizure action under Section 132 of the Income Tax Act, 1961 (in short

'the Act') was conducted in the case of the assessee on 28.09.2010 in

pursuance of warrant of authorization dt.27.9.2010. Notices under

Section 153A of the Act dt.23.3.2011 were issued to the assessee for

Assessment Years 2008-09 to 2011-12 and in response thereto, the

assessee filed the returns of income for these years on 2.4.2012. The

assessments were concluded under Section 143(3) r.w.s. 153A of the Act

vide order dt.14.3.2013. The details of income returned, additions made

and income assessed for Assessment Years 2008-09 to 2011-12 are as

under :

3 ITA Nos. 832 to 835/Bang/2015 Asst. Year Income Total Additions Accrued declared Income (Rs.) Unaccounted Wrong Claim u/s.153A cash receipts of (Rs.) (Rs.) expenditure (Rs.) 2008-09 1,68,45,707 8,35,91,047 NIL 9,54,36,754 2009-10 15,28,58,320 17,79,43,250 1,85,00,000 34,43,01,569 2010-11 28,64,99,700 8,70,54,416 2,67,71,921 39,03,26,041 2011-12 42,16,56,730 9,58,64,287 NIL 50,75,21,020

2.2 Aggrieved by the orders of assessment for Assessment Years 2008-

09 to 2011-12 containing the above additions made by the Assessing

Officer, the assessee filed appeals before the CIT (Appeals) – 11,

Bangalore, who dismissed the assessee's appeal vide the impugned

common order dt.10.3.2015.

3.1 Aggrieved by the aforesaid orders of the CIT (Appeals) – 11,

Bangalore, dt.10.03.2015, the assessee has filed appeals before this

Tribunal. The grounds raised in the appeal for Assessment Year 2008-09

are as under :

4 ITA Nos. 832 to 835/Bang/2015

5 ITA Nos. 832 to 835/Bang/2015 13. The authorities below erred in relying on material A/BSG/01 & A/BSG/02 which was already held as belonging to Mr.Bharat S Ghorpade against whom separate proceedings u/s 153C was initiated and completed.

6 ITA Nos. 832 to 835/Bang/2015 3.2 Similar / almost identical grounds of appeal have been raised for

Assessment Years 2009-10 to 2011-12 as the issues are common.

However, in respect of the additions made on the issue of Bogus

expenses for Assessment Years 2009-10 and 2010-11, a new ground

faulting the addition made towards bogus expenses has been raised as

Ground No.12.

3.3 The above grounds of appeal are essentially on the following

issues :

(i) The validity of search action and

(ii) on the correctness of additions made, based on the

certain seized material.

4.1 On the issue of validity of the search, the assessee placed reliance

on the decision of the Hon'ble Karnataka High Court in the case of C.

Ramaiah Reddy (339 ITR 210) (Kar) and the decision of the Hon'ble Apex

Court in the case of Ess Dee Aluminium Ltd. Vs. DDIT wherein the Hon'ble

Court has held as under :-

“ The petitioners have approached this Court only on the ground that under section 246A of the Income Tax Act, 1961,

7 ITA Nos. 832 to 835/Bang/2015 the Commissioner of Income Tax (Appeals) has no jurisdiction to examine the validity of the search operations carried out under Section 132 of the said Act. Learned Senior Counsel appearing for the petitioners has further submitted that the foundation of the assessment made hereunder in the search operations carried out against the petitioners. We are of the considered opinion that if the assessment order which is based on the search operations is under challenge, the validity of the search proceedings can also be gone into by the Commissioner of Income Tax (Appeals).”

4.2 However, in the light of the amendment in Finance Act, 2017 to

Sec. 132 of the Act by which the Tribunal is precluded from examining

this issue, we decline to get into the issue of validity of search action.

The ITAT is a creation of statute and has to apply the law as laid down in

the Act. In this view of the matter, this issue is decided against the

assessee and the grounds raised in this regard are dismissed.

5.1 In respect of the additions made based on seized documents, the

assessee is basically aggrieved on account of those additions made

based on seized material AIBSG/01, AIBSG/02, AIKMIORE/S (Series)

AIDKS/1 and the statements recorded from Sri Bharat S Ghorpade (in

short ‘BSG’), Kartikeya M Ghorpade (in short ‘KMG’), Ambika K Ghorpade

(in short ‘AKG’) and Dinesh Kumar Singhi (in short ‘DKS’). On an analysis

8 ITA Nos. 832 to 835/Bang/2015 of the above referred seized material, the Assessing Officer made the

following additions :

Asst. Year Total unaccounted Undisclosed Undisclosed cash sales Receipts income of income of AKG (Rs.) KMIORE (Rs.) (Rs.) 2008-09 16,71,82,094 8,35,91,047 8,35,91,047 2009-10 19,06,35,900 17,79,43,250 1,26,92,650 2010-11 15,27,27,045 8,70,54,416 6,56,72,629 2011-12 12,95,46,334 9,58,64,287 3,36,82,047 Total : 64,00,91,373 44,44,53,000 19,56,38,373

5.2 The Assessing Officer’s case, based on an appraisal of the seized

documents, is that it has transpired that the assessee along with Smt.

Ambika Ghorpade had extracted iron ore both with and without permit

and had received substantial sums both in cheque as well as in cash.

While the amounts received by cheque have been duly recorded in the

books of account, the cash components received have not been reflected

in the books of account. The addition in the table above (at para 5.1 of

this order) represents the alleged cash received outside the books from

M/s. Bharat Mines & Minerals (in short ‘BMM’) and M/s. BMM Ispat Ltd.

9 ITA Nos. 832 to 835/Bang/2015 (in short ‘BMMIL’). On being confronted with the seized material, the

assessee had submitted its reply, with which the Assessing Officer was

not satisfied, thereby resulting in the additions as extracted above.

While doing so, the Assessing Officer had made substantive additions in

the hands of M/s. BMM Ispat Ltd. (PAN – AACCB3556B) for the aforesaid

years of the entire amount of Rs.64,00,91,373 as unaccounted cash

payments/unexplained expenditure and also made a protective addition

in the hands of M/s. Bharat Mines & Minerals (PAN AAIFB 5946G) of the

similar amount of Rs.64,00,91,373. The learned CIT (Appeals) while

confirming the additions in the hands of the assessee also confirmed the

substantive additions in the hands of M/s. BMM Ispat Ltd., but deleted

the protective additions made in the hands of M/s. Bharat Mines &

Minerals.

5.3 While the assessee M/s. KMIORE, Ambika Ghorpade and M/s.

BMM Ispat Ltd. have filed appeals against the orders of the learned CIT

(Appeals), Revenue has filed appeals against the deletion of the

protective additions made in the hands of M/s. Bharat Mines and

Minerals praying for their confirmation as substantive. In this appeal, we

10 ITA Nos. 832 to 835/Bang/2015 are only concerned with the assessee M/s. KMIORE, and findings

rendered herein will have a bearing on the appeals in the hands of

Ambika Ghorpade, M/s. Bharat Mines and Minerals and M/s. BMM Ispat

Ltd..

5.4 For the years under consideration, namely A.Ys 2008-09 to 2011-

12, the additions made are as under :

(i) Unaccounted cash sale receipts aggregating to

Rs.44,44,53,000.

(ii) Bogus expenses in two years, namely A.Ys 2009-10 and

2010-11 amounting to Rs.1,85,00,000 and Rs2,67,71,921

respectively.

5.5 Before us, elaborate and extensive arguments were advanced by

both sides over several hearings and both parties have put forth written

submissions also which are extracted hereunder :-

5.5.1 The assessee's submissions.

“ The assessee is a Private Limited Company. For the above assessment year 2008-09, the assessee filed its return of income on 28.09.2008 declaring Total Income of Rs. 1,18,45,710/-. The search and seizure operation purportedly u/s 132 of the Income Tax Act, 1961 was carried on in pursuance of warrant of authorization dt. 27.09.2010 in the case of M/s Kartikeyas Manganese and Iron Ores Private Limited at Kartikeya Niwas, Krutika Farm Sandur. The premises

11 ITA Nos. 832 to 835/Bang/2015 at Gaurihara, Gandhi Colony, Hospet, was also searched purportedly u/s 132 of the Act and certain materials were seized. The said premise does not belong to the assessee but belongs to Mr. S.Y. Ghorpade. The warrant of authorization in this search was also not shown to the assessee or its representatives. It was shown to one Mr. S.Y.Ghorpade to whom the said premises belonged to. The seizure of documents marked A/BSG/01 and A/BSG/02 were made in the hands of S.Y. Ghorpade and Bharath S Ghorpade. The said material did not belong to the assessee. During the course of search at Bangalore premises at Mantri Elite, C-1102, Bannerghatta Road, Bangalore, a statement was recorded from Mr. Karthikeya M Ghorpade in the wee hours of the day. The assessee had lot of apprehensions about the legality and the manner in which statement was recorded and immediately filed a letter before the DDIT (Inv) seeking amendment to the statement recorded (PB page 1 to 3). Inspite of the said request, the DDIT (Inv) refused to give a copy of statement recorded to enable the assessee to confirm the veracity of the statements recorded. The above search was completed vide panchanama drawn on 29.09.2010 at 8.45 am. Thereafter, a notice u/s 153A dt 22.03.2011 was served on the assessee calling for filing return of income. The assessee filed return of income under protest and without prejudice on 02.04.2012 by declaring additional income of Rs. 50,00,000/- and total income of Rs. 1,68,45,710/- along with the letter dt 30.03.2012. The AO issued notices u/s 142(1) and 143(2) on 24.08.2012 calling for various details. Subsequently, notice was issued on 16.10.2012 proposing to make an addition of Rs. 8,35,91,047/- on the premise that the assessee had received the said sum in cash by sale of iron ore to Mr. Dinesh Kumar Singhi and M/s Bharath Mines and Minerals. The learned AO made the allegation of receipt of cash on the basis of the so called statements recorded from Mr. Bharath S Ghorpade, Mr. Dinesh Kumar Singhi, Mr. Karthikeya M Ghorpade and Ambika Ghorpade. The AO placed reliance on seized material A/BSG/01 & A/BSG/02 seized at Gaurihara, Gandhi Colony, Hospet. The assessee had earlier informed that the material in A/BSG/01 & A/BSG/02 does not belong to it. Appreciating the clarification of the assessee, the AO had issued notice u/s 153A r.w.s 153C dt 05.03.2012 to Mr. Bharath S Ghorpade holding that the said materials belong to Mr. Bharath S Ghorpade. Even after holding that the material belonged to Mr. Bharat S Ghorpade, the AO proceeded to assess the income based on the said seized material and uncorroborated statements of Mr. Bharath S Ghorpade and Mr. Dinesh Kumar Singhi, without allowing Mr. Karthikeya M Ghorpade to correct the statement. The assessment has been

12 ITA Nos. 832 to 835/Bang/2015 completed assessing the income of Rs. 9,54,36,754/- by making additions of Rs. 7,85,91,047/- (after considering income declared to the extent of Rs 50,00,000/-). The AO has erred in making the said addition by holding that the assessee had effected certain cash sales and has received cash. There is absolutely no evidence of what so ever nature available for the AO to make such addition. The objections filed by the assessee have been summarily dismissed without meaningfully going through the same. The AO has relied on ‘hear say’ and uncorroborated evidences in preference to facts and relevant evidence. The material in the form of A/BSG/01 and A/BSG/02 did not pertain to the assessee and the entries are totally in variance with the books maintained. Not even the rudimentary evidence that the assessee has received cash in excess of what is recorded in the books has been led by the AO. The detailed explanation given by the assessee has been ignored. Thus the addition is based on wholly inconsistent and unsustainable conclusions. There is neither any asset commensurate to the alleged cash receipts nor is actual cash available with the assessee. In the absence of any such asset or valuable, it would be wholly inconsistent to make the above additions. In this regard, the assessee relies on the decision in Nirmal Fashions (P) Ltd vs DCIT - 123 TTJ 180 - Kolkata ITAT (CLPB page 306/317) wherein the tribunal has held as under: ‘’… As per the presumption of the AO, the assessee is carrying on the business of purchase and sale of saree outside the books on large scale which has resulted in the huge income which is not recorded in the assessee’s books of account every year. However, during the course of search of the assessee’s premises, no unrecorded stock, cash or other assets were found. The Revenue has searched the business premises of the firm/company as well as the residential premises of the partners/directors. Not a single evidence of purchase or sale outside the books is found. In our opinion, it is impossible to carry on business on a huge scale outside the books unless there is some unrecorded stock, cash, debtors, etc. Moreover, if the assessees had huge unrecorded income of crores of rupees in each year, it would have reflected in the form of asset or some expenditure outside the books. No significant asset outside the books or no evidence of ostensible expenditure outside the books is found. In the above circumstances, we cannot uphold the additions made by the AO in the case of both the assessees for the assessment years under consideration on the basis of loose papers by making certain presumptions which are found to be untenable or contrary to the other evidence on record. In view of the above, we delete the additions made by the AO and confirmed by the CIT(A) on the ground of alleged undisclosed net profit outside the books.’’ The AO having held that A/BSG/01 & A/BSG/02 belongs to Mr. Bharath S Ghorpade, should not have assessed the income in the hands of the assessee

13 ITA Nos. 832 to 835/Bang/2015 which is against section 153C of the Act. Thus, the addition is unsustainable and the assessee is aggrieved by the said addition. The assessee has filed return of income along with the audited financials comprising of Profit and loss account, Balance Sheet and other schedules. The AO has adopted the income as declared by the assessee based on books of account. The AO has not expressed any adverse view on the correctness or completeness of the accounts of the assessee. In fact, the AO has adopted and relied on books of account maintained. This being the case, he could not have made the additions except in the manner provided u/s 145(3) of the Act. Unless section 145(3) is invoked, there cannot be any addition to business income. in this regard, the assessee relies on the decision in CIT vs Lancy Constructions - ITA 528 to 531/2014 - KAR HC (CLPB page 3) wherein the court has held as under: ‘’5.We agree with the opinion of the Tribunal that additions could not have been made by the Assessing officer without rejecting the books of accounts of the assessee, and also without there being any adverse comment made by the Assessing officer with regard to the books of account that were maintained by the assessee, which were duly audited. 6. In our view, if assessment is allowed to be reopened on the basis of search, in which no incriminating material had been found, and merely on the basis of further investigating the books of accounts which had been already submitted by the assessee and accepted by the Assessing officer at the time of regular assessment, the same would amount to the Revenue getting a second opportunity to reopen the concluded assessment which is not permissible under the law.’’ Thus, non adherence to the provisions of section 145(3) of the Act, renders the additions unsustainable.

Based solely on the seized material A/BSG/01 & A/BSG/02 the income in the form of alleged cash sales has been calculated at page 53 of the assessment order extracted as under: ‘’Total cash receipts as per seized materials From the above discussion, it is clear that M/s. KMIORE and M/s. AKG have received total cash of Rs. 64,00,91,473/- as evidenced by the seized material. The amount received by M/s. KMIORE and M/s. AKG are purely their profits out of which these concerns might be incurring certain expenses on payment of royalty, administrative expenses etc. All the legal and statutory expenses are met out of accounted cheque receipts. Infact the royalty expenses and other mining expenses are incurred by BMM which is accounted in its books.

14 ITA Nos. 832 to 835/Bang/2015 A.Y Total unaccounted Undisclosed income Undisclosed income cash sales receipts of M/s. KMIORE of M/s. AKG 2008-09 167182094 83591047 83591047 2009-10 190635900 177943250 12692650 2010-11 152727045 87054416 65672629 2011-12 129546334 95864287 33682047 Total 640091373 444453000 195638373 ‘’

The said income has been apportioned between assessee and AKG as mentioned above and taxed on substantive basis. Based on the same material amount of Rs.64,00,91,473/- has been taxed for the AY 2008-09 to 2011-12 in the hands of BMM Ispat Ltd. Identical amount has also been taxed on protective basis in the hands of Bharat Mines and Minerals (Firm) for the same assessment years. That CIT-A who heard the assessee’s arguments has confirmed the entire addition in the hands of the assessee as well in Ambika Ghorpade and BMM Ispat Ltd substantively whereas deleted the protective assessment in the hands of Bharat Mines and Minerals. Before the Hon’ble ITAT the assessee Ambika Ghorpade and BMM Ispat Ltd have filed appeals whereas Department has filed appeal in the case of Bharat Mines and Minerals against the deletion. In this regard the assessee objects for the addition made in the assessment order which is based on A/BSG/01 & A/BSG/02 and statements of Kartikeya M Ghorpade, Ambika Ghorpade, Dinesh Kumar Singhi and Bharat S Ghorpade.

The assessee submits that no reliance should be placed on A/BSG/01 & A/BSG/02 for the following reasons: Firstly it is a material not seized from the assessee and does not belong to the assessee. When seized it was in the possession of Bharat S Ghorpade in the residence of SY Ghorpade. When the objection was taken on this issue the AO has already held that the said material belonged to Bharat S Ghorpade vide issue of notice u/s 153C in his hands (PB page 206). Having held that the material belongs to Bharat S Ghorpade, the same cannot be the basis for addition in the hands of any other assessee other than Bharat S Ghorpade.

15 ITA Nos. 832 to 835/Bang/2015 Even if the name of the assessee is found in the seized material still the same cannot be used in the case of the assessee as held in the following caselaws: 1) Vijaybhai N. Chandrani vs. ACIT - 333 ITR 436 - Guj HC (CLPB page 430/431) 2) Hon’ble Bangalore ITAT in Senate vs. DCIT - 181 TTJ 562 (CLPB page 436/446), 3) P.Srinivas Naik vs ACIT - 114 TTJ 856 - ITAT Bangalore (CLPB page 133/136) 4) PCIT vs Vinita Chaurasia - 394 ITR 758 - DEL HC (CLPB page 80/91)

Since the department itself has held the material belongs to Bharat S Ghorpade no addition could be made in the hands of the assessee.

Secondly the seized material A/BSG/01 & A/BSG/02 seized is mentioned in panchanama issued to SY Ghorpade/Bharat S Ghorpade at PB page 218. The extract of the portion of panchanama is as under :

Sl No Description Total Written pages pages 1 Folder containing loose sheets 72 72 2 Folder containing loose sheets 150 150

When the assessee sought copies of the seized material it was provided by the department and the same has been filed before the Hon’ble ITAT. The assesseee immediately took objection of the contents and denied any cash transaction contemporaneously vide letter dt. 26.10.2010 & 22.11.2010 (PB page 1 & 2) and also requested for authentication of the seized material. The department has not authenticated the seized material till date. There are gaping issues on the veracity of the seized material provided as the A/BSG/01 & A/BSG/02 to the assessee. While the number total number of pages and written pages as per panchanama in A/BSG/01 were 72 the written pages provided were far in excess of 72 and numbers 90. Similarly in A/BSG/02 total number of pages and written pages as per panchanama were 150, the written pages provided were far in excess of 150 and numbers 182. Thus the additional written pages provided to the assessee are 18 pages in A/BSG/01 & 32 pages in A/BSG/02 totalling excess of 50 pages. Thus the material provided were far in excess of written pages seized from Bharat S Ghorpade. The department has neither authenticated the seized

16 ITA Nos. 832 to 835/Bang/2015 material provided to the assessee nor has come forward to explain as to how the more written pages are in the possession of the department than what is said to have been seized. Since the assessment mentions extensively of A/BSG/01 & A/BSG/02 the recording of statement on oath from Kartikeya M Ghorpade, Ambika Ghorpade, Dinesh Kumar Singhi and Bharat S Ghorpade is based on alleged seized material. The excess written pages not mentioned in the panchanama renders the entire statement on oath from various people as well as the assessment as not reliable. Non authentication till date renders the material not reliable. Thus the addition based on said material requires to be vacated.

Thirdly, kindly refer to the Panchanama available at page 218 of the Paper book (PB) – warrant being drawn in the case of the assessee to search the residential premises of S.Y.Ghorpade/Bharat S Ghorpade at Gaurihara, Gandhi Colony, Hospet. The said premises does not belong to the assessee but to SY Ghorpade, father of Bharat S Ghorpade. The search commenced on 28.09.2010 at 9.30 am and the proceedings were closed on 29.09.2010 at 7.45 am. During the course of search proceedings a statement u/s 132(4) of the Act was recorded of Bharat S Ghorpade commencing at 11.30pm on 28.09.2010 questioning him on the exhibit marked A/BSG/01 & A/BSG/02. The oath statement is signed by Bharat S Ghorpade at early hours on 29.09.2010 (page 377 of PB). Page 220 PB contains the list of inventory of books of accounts, documents etc found and seized during the search at Hospet supra. The inventory seized marked as A/BSG/01 contains folder of loose sheets (total pages 72 & written pages 72) & A/BSG/02 contains folder of loose sheets (total pages 150 & written pages 150).

The search was also conducted in the case of Ambika Ghorpade at C-1102, Mantri Elite Apartments, Bannerghatta Road, Bangalore (page 422 PB). The search commenced on 28.09.2010 at 9.30am and the proceedings closed on 29.09.2010 at 8.45am. During the search proceedings the statement on oath of Kartikeya M Ghorpade (husband of Ambika Ghorpade and Managing Director of KMIORE) was recorded on oath questioning him on certain pages of the seized material marked as A/BSG/01 & A/BSG/02 (page 408PB). The statement u/s 132(4) was also recorded of Ambika Ghorpade at the same time during the search proceedings questioning her on certain pages of the seized material marked as A/BSG/02 (page 420 PB).

17 ITA Nos. 832 to 835/Bang/2015 In view of the above factual position, it is incorrect to say that the seized material shown to Kartikeya M Ghorpade/Ambika Ghorpade while recording statement is the same seized material which was seized in the case of Bharat S Ghorpade at his father SY Ghorpade residence as the said seized material was still in Hospet on 29.09.2010 till 7.45am. Since the statements were taken from Kartikeya M Ghorpade and Ambika Ghorpade in the wee hours of the day and there being no clarity on the basis on which the statements were recorded, the assessee represented by its Directors (Kartikeya M Ghorpade and Ambika Ghorpade) wrote to the Investigation wing seeking copies of seized material based on which their statements were recorded (page 1 & 2 PB). Till date the said copies have not been made available to the assessee neither an opportunity to rectify the statements has been given. Assessee’s submissions regarding the same before the AO are found in page 90 to 92 relevant page 92 ;pages 115 to 122 PB, relevant page 117 PB.

The analysis of the above facts clearly indicates that the statement of Bharat S Ghorpade was recorded at Hospet between 11.30pm on 28.09.2010 till 7.45am on 29.09.2010. The question no.4 & 5 in the statement u/s 132(4) recorded from Bharat S Ghorpade and the answer is extracted as hereunder: (PB page 377 & 378) ‘’Q 04 I am showing you exhibit marked A/BSG/01 dated 28.09.2010 which contains a bunch of loose sheets serially numbered from 01 to 72. Please go through the exhibit, identify the handwriting and explain the contents? Ans I have gone through the exhibit marked A/BSG/01 dated 28.09.2010 which contains a bunch of loose sheets serially numbered from 01 to 72. These loose sheets written by me were kept by me in my father’s residence at the address mentioned above. The jottings pertains to the business transactions of KIMORE Pvt., Ltd., and Karthikeyas Manganese & Iron Ore Mine with Bharath Mines & Minerals Ltd and also other parties. It contains details of supply of iron ore with permits and without permits to these parties and payments received against the same by both cheque and cash. Q 05 I am showing you exhibit marked A/BSG/02 dated 28.09.2010 which contains a bunch of loose sheets serially numbered from 01 to 150. Please go through the exhibit, identify the handwriting and explain the contents? Ans I have gone through the exhibit marked A/BSG/02 dated 28.09.2010 which contains a bunch of loose sheets serially numbered from 01 to 150. These loose sheets written by me were kept by me in my father’s residence at the address mentioned above. The jottings pertains to the business transactions of KIMORE Pvt., Ltd., and Karthikeyas Manganese & Iron Ore Mine with Bharath Mines & Minerals Ltd and also other parties. It contains

18 ITA Nos. 832 to 835/Bang/2015 details of supply of iron ore with permits and without permits to these parties and payments received against the same by both cheque and cash.’’

The above indicates that the alleged seized material A/BSG/01 & A/BSG/02 were at Hospet which is about 500kms from Bangalore. The access to Hospet is by rail and road and there is no airport. The statement of Kartikeya M Ghorpade in question no. 7 & 13 (PB page 412) extracted hereunder: ‘’Q.No.7: I am showing you pages 71,72,109,115,118,125,129,135 and 147 of the seized material marked as A/BSG/02 seized from the residence of Mr. Bharat Ghorpade at Gandhi Colony, Hospet during the course of search u/s 132(1) on 28/9/2010. Please go through the pages and explain the contents of the same. Also please state who has written these pages.

Q.No.13: I am showing you page No.34 of the seized material marked as A/BSG/01 seized from the residence of Mr. Bharat Ghorpade at Gandhi Colony, Hospet during the course of search u/s 132(1) on 28/9/2010. Please go through the page and explain the contents of the same. Also please state who has written these page.’’ and statement of Ambika Ghorpade in question no.3 (PB page 421) extracted hereunder: ‘’Q.No.3: I am showing you pages 71,72,109,115,118,125,129,135 and 147 of the seized material marked as A/BSG/02 seized from the residence of Mr. Bharat Ghorpade at Gandhi Colony, Hospet during the course of search u/s 132(1) on 28/9/2010. Please go through the pages and explain the contents of the same. Also please state who has written these pages.’’ seems to show that the same material which was at Hospet at the impugned time was shown to Bharat S Ghorpade and the same was shown to Kartikeya M Ghorpade and Ambika Ghorpade around the same time as is evident that the statements of Kartikeya M Ghorpade and Ambika Ghorpade was taken in the wee hours of 28 & 29.09.2010. These simultaneous presence of the seized material in two places, one at Hospet far away from Bangalore and the same at Bangalore at the same time casts serious issue of reliability of the statement recorded as to whether at all the so called seized material was confronted to the aforesaid Bharat S Ghorpade, Kartikeya M Ghorpade and Ambika Ghorpade. Since it is not possible for the material to be in two different locations at the same time it is clear that the statements have been recorded not by showing the seized material. Thus the statements of the aforesaid persons

19 ITA Nos. 832 to 835/Bang/2015 renders not reliable for framing the assessment and is frot with serious lacuna and non reliability.

Adverting to the statement of Dinesh Kumar Singhi mentioned in PB page 441, perusal of the same does not indicate any confirmation of transactions as mentioned in A/BSG/01 & A/BSG/02.

Without prejudice, even Bharat S Ghorpade in answer to question no.4 extracted supra says that the transactions in A/BSG/01 & A/BSG/02 is not only with the assessee and Bharat Mines and Minerals but also with other parties. Who the other parties are nor the extent of transaction with them has not been investigated. The AO has ignored this vital aspect. All these objections have not been considered by the AO and he has placed immense faith in the seized material as a gospel of truth and has not conducted any investigation to bring any corroboration. The only corroboration he mentions is in para 9.2 page 27 of the assessment order (running page 55).

The mention by the AO that the cheque transaction in seized material tallies with the accounted transaction in the books of accounts of the assessee is again factually incorrect. The assessee has filed the copy of the ledger extracts indicating the bank transactions and also comparative statement between the seized material and the books of accounts (PB page 456 to 470) clearly indicating that the transaction through the bank accounts of the assessee does not tally with that of the seized material, thus rendering the only argument of the AO also incorrect.

The seized material A/BSG/01 & A/BSG/02 are a bunch of loose sheets with semi legible scribblings is not a regular books of accounts and not even kaccha books of accounts. It has lot of overlapping information and not continuous. It does not even mention the individual transactions but mentions certain aggregate of transactions in somewhat non descriptive code words. Several conflicting interpretations are possible and no uniform conclusion can be drawn. It is in this context that the Hon’ble Supreme Court has held in Common Cause (A Registered Society) & Others vs. Union of India & Others - 98 CCH 28 (CLPB page 279, para 17 pg 284, para 20 &21 page 285, para 24 page 286) that no liability can be fastened on the basis of loose sheets as per section 34 of the Evidence Act. The supreme court also refers to the view of the Income Tax Settlement Commission and upholds the same that loose sheets

20 ITA Nos. 832 to 835/Bang/2015 are not evidence because it is neither books of accounts nor it is maintained regularly. In the absence of non adherence to the twin requirements of section 34 of the Evidence Act, the supreme court has held that no liability under law can be brought about based on the loose sheets. Similarly Hon’ble ITAT in Nishant Construction Pvt Ltd vs ACIT - ITA 1502/Ahd/2015 - AHD ITAT (CLPB page 291/304) has held that loose sheets are dumb documents and cannot be relied on for framing the assessment.

In summary it is submitted that since A/BSG/01 & A/BSG/02 does not belong to the assessee, no undisclosed cash or asset to the extent of Rs.64 crores is found in the search and cash found was only Rs.28,000/- (PB page 233) and that the authenticity of the seized material A/BSG/01 & A/BSG/02 is in serious doubt and that statements of Kartikeya M Ghorpade, Ambika Ghorpade, Dinesh Kumar Singhi and Bharat S Ghorpade are not reliable and no cross examination has been provided and since it is loose sheets the addition made should be deleted especially since the sole corroboration stated by the AO that the cheque transactions mentioned in loose sheet tallies with books of accounts is incorrect, the entire addition needs to be deleted.

Bogus expenses –AY 2009-10 & 2010-11 The AO has made addition of Rs. Rs.1,85,00,000/- for AY 2009-10 and Rs.2,67,71,921/- for AY 2010-11 stating that the assessee has raised certain bogus claim for expenditure and disallowed the same. In doing so he has relied on the statements of Mr.K.V.Balan and Mr.Antony Balaraj. It is submitted that all the expenses are duly recorded in the books of accounts and the payments have been made through the regular banking channels. The seized material A/KMIORE/S/5 referred by the AO is not incriminating as the expenses referred therein and the TDS calculation is part of the books of accounts. No expenses can be disallowed merely on the basis of statement of third parties. The copies of the statements were not given to the assessee. No opportunity for cross examination has been provided to the assessee and in the absence of the same statements cannot be relied on.

In addition to the above, the assessee relies on the following case laws: On the issue of assessment made based on third party statements: PCIT vs Saumya Construction P Ltd - 387 ITR 529 - GUJ HC CIT vs SMC Share Brokers Ltd - 288 ITR 345 - Delhi HC

21 ITA Nos. 832 to 835/Bang/2015 On the issue that addition cannot be made on estimate basis, guess work and suspicion: Dhakeswari Cotton Mills Ltd vs CIT - 26 ITR 775 – SC (CLPB page 155/156) A.S.Sivan Pillai vs CIT - 34 ITR 328 - Madras HC(CLPB page 162/163)

On the issue that admission is not conclusive and has no evidentiary value: Pullangode Rubber Produce Co Ltd vs. State of Kerala & Anr - 91 ITR 18 - Supreme Court (CLPB page 189/190) CIT vs. S.Khader Khan Son - 352 ITR 480 – SC (CLPB page 336) CBDT Instruction No.F.No.286/2/2003/IT(Inv) - confession of additional income during the course of search & seizure and survey operation (CLPB page 167) On the issue that loose sheets have no evidentiary value/no corroborative material: Common Cause (A Registered Society) & Others vs. Union of India & Others - 98 CCH 28 – SC CIT vs. Shri Praveen Juneja - ITA 57/2017 - Delhi HC Nishant Construction Pvt Ltd vs ACIT - ITA 1502/Ahd/2015 - AHD ITA Nirmal Fashions (P) Ltd vs DCIT - 123 TTJ 180 - Kolkata ITAT.

On the issue that statement taken in the wee hours cannot be relied: Sahil Study Circle Pvt Ltd vs DCIT - 179 TTJ 1 - Delhi ITAT

On the issue of approval granted u/s 153D, it is the contention of the assessee that the approval has been granted without application of mind and in a mechanical manner. In support of its contention, the following caselaws are relied on: 1) Chhugamal Rajpal vs. S.P.Chaliha & Ors - 79 ITR 603 – SC. 2) CIT vs. Akil Gulamali Somji - 84 CCH 53 - Mum HC– CLPB page 358 3) Smt.Shreelekha Damani vs. DCIT - 173 TTJ 332 - Bombay ITAT. 4) AAA Paper Marketing Ltd vs ACIT - ITA 167/Lkw/2016 - Lucknow ITAT.

The grounds on interest u/s 234A/B/C are consequential in nature.”

22 ITA Nos. 832 to 835/Bang/2015 5.5.2 Department’s Submissions. 1. “ Search under section 132 of the Act was conducted in the case of the assessee on 28/9/2010. Notice under section 153A of the Act issued on 22/3/2011 and same was served. 2. During the course of search in the case of Mrs Ambika Ghorpade and M/s. KMIORE (Kartikeya Manganese and Iron Ore Private Limited) the following facts came to light: – i. Mrs Ambika Ghorpade is owner of mining lease No. 2354 referred to as old mines(OM) and the company M/s.KMIORE owns mining lease No. 2559 referred to as new mines (NM). The mine owners have signed ore raising contracts with Mrs.Snehalatha Singi for extraction and processing the iron ore from these mines. ii. As per the business arrangement Mrs.Snehalatha Singi would undertake extraction and processing the iron ore into lumps and fines, handover to the mine owners who in turn supplied processed iron ore to Bharat Mines and Minerals. iii. The mine owners are just leaseholders and entire set of activities is carried out by Mr Dinesh, Singhi of BMM though ore raising and processing contract is in the name of Mrs Snehalatha Singhi. Mine owners sell the processed iron ore only to BMM. During the course of search several documents relating to business activities were found and seized in the premises of Sri Bharat S Ghorpade, person in charge of affairs of the assessee mining business) marked as A/BSG/01 and A/BSG/02. iv. Show cause notice was issued and served on the assessee by making the seized documents as part of the show cause notice. The statements relevant of Mr Bharat S Ghorpade was also made as part of the show cause notice. The show cause notice is extracted in the assessment order at page 3 to 16 of the assessment order. The assessee in reply dated 15/11/2012 acknowledged the receipt of seized material marked as A/BSG/01 and A/BSG/02. All the statements recorded and relied on also provided to the authorised representative of the assessee. v. One more show cause notice dated 9/1/2013 was issued by incorporating the relevant pages of the seized material

23 ITA Nos. 832 to 835/Bang/2015 and the statements of Sri Kartikeya Ghorpade Managing Director of the assessee company (page 19 to 21 of the assessment order). The assessee filed reply on 6/2/2013 (page 21 to 24 of assessment order). vi. All the issues on point wise were considered and finding was recorded by the Assessing Officer as under: – a. with respect to objection stating statement does not indicate any payment of cash or activity outside books. Assessee attention was invited to statement dated 19/7/2010 to Q.No.8 of Mr Dinesh Kumar Singhi accepting payment of Rs.1.40 crores in cash and the remaining amount of Rs.27,03,33,112/– in cheque. b. Assessee’s objection regarding not indulged in sale outside the books of accounts and no supply has been made to JSW and KFIL, attention of the assessee was invited to the seized material found and seized from the premises of Mr Bharat S Ghorpade and confirmed by Mr Dinesh Kumar Singhi, Mr Kartikeya Ghorpade and also Mrs Ambika Ghorpade. c. Assessee objection with respect to statements of Mr Dinesh Singhi, Mr Bharat S Ghorpade and Mr Karthik Ghorpade, the statements relied on have been provided to the assessee and acknowledged by the assessee. The material relied on (seized material) has been provided to the assessee and the same is acknowledged. The assessee has not objected to the material facts in the statements except for procedural issues which are incorrect. Seized material have been provided to the assessee three times. d. With respect to the assessee objection questioning the veracity of the entries in the seized material, the Assessing Officer held that the same has been confronted to the person who has written them and same has been confirmed. vii. The assessee has not objected to the quantification of the undisclosed income. However the same has been dealt for the sake of clarity as under: –

24 ITA Nos. 832 to 835/Bang/2015 a. Cash portion of sales consideration: – The profit margin on sale of iron ore with permit and without permit has been received by cheque as well as cash by the assessee. This is recorded month vise by Mr Bharat S Ghorpade and found and seized during search. The sale consideration received by cheque from BMM/BMM Ispat Ltd are accounted in the books of accounts of the assessee but the cash component is not accounted. This has been confirmed from books of accounts and the statements recorded from Mr Bharat S Ghorpade and Mr Kartikeya Ghorpade. (Tabulation at page 27 and 28 of the assessment order). b. Mr Bharat S Ghorpade admitted that entries in the seized material A/BSG/01 and A/BSG/02 written by him and sales of iron ore to Sri Mr Dinesh Kumar sINGHI of Bharat Mines and Minerals. Further admitted the sale of iron ore with permits and also without permits and the receipt of amounts being sale consideration received by way of cheques and cash. Relevant portion of the statements of Mr Bharat S Ghorpade are extracted at page 29 to 37 of assessment order. c. Mrs Ambika Ghorpade was questioned and she stated that entire business activities are undertaken by husband and he only explain the seized materials. d. Mr Dinesh Kumar Singhi accepted the payment of cash of Rs.1.40 crores in respect of billing done in April 2010 reflected in seized material. e. Page 25 and 26 of the seized material marked as A/KMIORE/S/06 seized from the office of M/s.KMIORE Pvt Ltd during search and 28/9/2009 containing billing details for month of August 2009 and September 2009. As per this page, the total iron ore sold during these months was 127006.97 MT at the rate of Rs.750 per MT for total sale value of Rs.9,52,55,227. Out of this, the amounts covered in the invoice was Rs.6,64,55,424/– adjusted to the permitted quantity of iron ore measuring 52442.780 MT. The remaining sale consideration of Rs.2,87,99,803/– is written as cash for the month of August and September 2009 out of which a sum of Rs.37,99,803/– is written to have been received and the balance of Rs.2,50,00,000/– yet to be received. A

25 ITA Nos. 832 to 835/Bang/2015 sum of Rs.1,50,00,000/– being cash component for the month of August 2009 has been considered in the about table. The remaining amount of Rs.1,37,99,803/– needs to be taxed as unaccounted and undisclosed income in the hands of the assessee and Mrs Ambika Ghorpade proportionately. f. Similarly the cash receipts for period of April 2008 to March 2009, cash payments are tabulated at page 39 of the assessment order. Total amount received in cash is Rs.19,06,35,900/– for the above period and the same has been admitted by Mr Bharat S Ghorpade from Mr Dinesh Kumar Singhi of M/s. Bharat Mines and Minerals. Relevant portion of statement is extracted for ready reference at page 40 and 41 of the assessment order. The contents of the said page was also confronted to Mr Karthikeya M Ghorpade during course of search at his residence and he has admitted the receipt of cash from Mr Dinesh Kumar Singhi of Bharat Mines and Minerals during the period from 26/4/2008 218/3/2009 from sale of iron ore. Mr Kartikeya Ghorpade has admitted the amount of Rs.19,06,35,900/– as undisclosed income of M/s.KMIORE Pvt Ltd for Assessment Year 2009–10. Relevant portion of statement extracted at page 41 and 42 of the assessment order. g. Page number 27, 28, 29, 34, 35 and 36 of the seized material marked as A/BSG/01 from residence of Mr Bharat S Ghorpade contains details of certain payments received by cash from Mr Dinesh Kumar Singhi during the period February 2008 till March 2009. Pages 27, 28 and 29 contains details of iron ore sold during the period from February 2008 to June 2008 with permits and without permits. As per the analysis of the seized material total permitted quantity of iron ore weighing 185600 MT was sold during the period February 2008 to June 2008. As per page 29 the total payment received or permitted quantity of iron ore was Rs.24,12,81,600/– which includes cash portion sale consideration of Rs.7,62,81,600/–. On detailed examination of the seized material it was found that sale consideration has been divided into two components with the different rates towards cheque and cash.

26 ITA Nos. 832 to 835/Bang/2015 h. Page 30 of the seized material A/BSG/01 reflects aggrieved prize at Rs 1300/– per MT. This was further divided into two parts for permitted quantity at Rs.889/- per MT for cheque and Rs.411/– per MTS for cash component the Page further contains details of cash received on sale of 119926.08 MT of iron ore without permits during the period February 2008 to June 2008 and cash receipt for without permit quantity was Rs.15,59,03,904/–. The total cash sales for the period February 2008 to June 2008 works out to Rs.23,21,85,504/–. The Page further contains cash receipts of Rs.8,86,98,500/– towards sale of iron ore without permits during month of July 2008 and August 2008 and the quantity of iron ore is 57041 MT (50767 Mt fines and 6274 MT lumps) hence total sale receipts for the period February 2008 to August 2008 is Rs.32,08,84,004/–. i. Mr Bharat S Ghorpade admitted the above cash receipts on sale of iron ore during February 2008 to August 2008 and not being accounted in the books of accounts of the assessee for relevant period. (Statement extracted at page 44 to 48 of the assessment order). The above cash receipts have been admitted by Mr Kartikeya Ghorpade on sale of iron ore during the period on confrontation of the seized material, and the same has been admitted to be undisclosed income. (Relevant Statement of Mr Kartikeya Ghorpade extracted at page 49 to 50 of assessment order). j. The cheque component received on sale of iron ore by the assessee and Shri Ambika K Ghorpade mentioned in the seized material tallied with the books of accounts with minor differences which would have crept in due to rounding off of the rates or due to carry forward of the previous month sales to the following months or addition of arrears of royalty etc and fits to the modus of accounting and billing as discussed above. The month wise sale as found in the seized material is tabulated at page 51 to 52 of the assessment order. From the tabulation it is clear that Bill prepared at the end of month for the cheque portion of the consideration received, consideration received by cheque is apportioned to the permitted quantity of the iron ore sold. At the time of invoicing,

27 ITA Nos. 832 to 835/Bang/2015 the total sale consideration is increased by Rs 100/- per MT of permitted quantity of iron ore sold. k. The month wise sale of iron ore for which consideration is received by cheque tallies with the books of accounts and tallies with the quantity of iron ore shown to have been sold with permits in the invoices. l. As evidence from the seized material the total cash receipt is Rs.64,00,91,473/–. m. Bogus expenses:-The entire operations of the mines owned by the assessee are being carried out by Bharat Mines and Minerals as such the assessee has no expenses to be incurred except administrative in miscellaneous expenses. In the course of search at residence of Mr Bharat Ghorpade and office premises of the assessee setting bills pertaining to the contract works were found and seized and the same is placed at page 55 of the assessment order reflecting adjustment bills in the name of the employees of the company. n. Similar entries were found for the Assessment Year 2010–11 in the notebook maintained by the assessee and same is scanned at page 57 of the assessment order reflecting generation of bills in the names of spouses of the employees by the assessee. The statement of employees (accountant) is extracted at page 59 and 60 admitting the contractors are either the employees of the company or the spouses or relatives. Further admitted generation of bills in the office of the assessee (relevant portion of statement at page 61 and 62 of the assessment order). An analysis it is found the contract work is only accommodation entries to avoid payment of tax. 3. The same has been appreciated in proper prospective by the Appellate Commissioner and upheld the same. 4. Reply to assessee submission. a. The contention of the assessee that addition of Rs.7,85,91,047/– towards cash sales and cash receipt is without evidence is incorrect. The seized material marked as A/BSG/01 and A/BSG/02 clearly reflected the sale of iron ore with and without permits, cheque component and cash component. The sale of iron

28 ITA Nos. 832 to 835/Bang/2015 ore with permits and the consideration received in cheque component tallied with the books of accounts maintained by the assessee. Invoices are tampered to match the quantity with permits. Mr Bharat Ghorpade was looking after the affairs of the assessee company has admitted the content’s to be correct. Another party to the contract Mr Dinesh Kumar Singhi has further admitted the contents to be true. Mr Kartikeya Ghorpade Managing Director of the assessee company has accepted the contention of the seized material to be correct and true. In such circumstances the contention of the assessee is an afterthought and without any basis. b. The contention of the assessee that objection filed has been summarily dismissed without meaningful going through the same is incorrect on the face of it. Each and every objection has been dealt by the Assessing Officer point wise. The Assessing Officer has explained each and every page of the seized material and the relevance of the same with support of the statements of the above referred persons. c. The further contention that the material in the form of A/BSG/01 and A/BSG/02 does not belong to the assessee is an afterthought when the person in charge of the business of the assessee and the Managing Director have admitted the same, the above submission is only for the sake of argument without any substance. d. In view of the assessments being pending under section 153A of the Act, the contention of the assessee that assessment under section 153C of the Act has to be done in respect of the material found and seized from Mr Bharat S Ghorpade is incorrect and the Act does not provide for dual assessments one under section 153A and another under section 153C of the Act. Reliance is placed on the judgement of the High Court in the case of Canara Housing 274 CTR 122 wherein it is held that assessment under section 153A of the Act is not confined only to the seized material but also with reference to the material in possession of the Assessing officer and some other material found in the course of assessment proceedings. e. The contention of the assessee with respect to section 145 (3) of the Act is incorrect. All the additions made on the basis of the seized material not reflected in the books of accounts and hence question of books of accounts being rejected does not arise.

29 ITA Nos. 832 to 835/Bang/2015 f. The contention raised with respect to the discrepancies in the pagination of the seized material is hyper technical, afterthought and baseless. It is an attempt made by the assessee to deviate from the main issue. When the same material was provided to the assessee the same has been admitted and this is an attempt to overcome the admission made on oath. The entire set of seized material has been placed before this Hon’ble Tribunal and the authenticity can be examined. Each and every page of the document has been authenticated by Mr Bharat S Ghorpade by affising signature and date, from whose possession the same has been seized. In such a situation, the assessee is not correct in questioning the authenticity of the seized material that too in a situation where majority of the entries tallied with the books of accounts maintained by the assessee. g. Another illogical contention raised by the assessee with respect to the possibility of confronting the same seized material to Mr Bharat Ghorpade and Mr Kartikeya Ghorpade’s immaterial and irrelevant. What is relevant is whether the material found and seized has been confronted and the same aspect is not under dispute. In view of the present technology, the contention of the assessee is illogical. h. All other contentions which are not specifically commented are denied as false. The further contention of the assessee that approval granted under section 153D of the Act is without application of mind and in mechanical manner is incorrect. The approval has been granted strictly in conformity with the provisions of the Act. Wherefore it is respectfully prayed to dismiss the appeal filed by the assessee.”

6.1.1 We have heard the rival contentions, perused and carefully

considered the submissions put forth, the orders of the authorities below

and the others material on record, including references to the relevant

seized material in AIBSG/01, AIBSG/02, A/KMIORES (Series), AIDKS-1 and

30 ITA Nos. 832 to 835/Bang/2015 the statements of Bharat S Ghorpade, Kartikeya M Ghorpade,Ambika

Ghorpade and Dinesh Kumar Singhi.

6.1.2 The issues that require consideration can be summed up as

under :-

1) Whether seized material AIBSG/01 and AIBSG/02 can be relied on for framing the assessments in the hands of the assessee M/s. KMIORE, Ambika Ghorpade, M/s. BMM Ispat Limited and M/s. Bharat Mines and Minerals. 2) Veracity of relying on the statements of Bharat S Ghorpade, Kartikeya M Ghorpade, Ambika Ghorpade and Dinesh Kumar Singhi. 3) The reliability of seized material in A/KMIORES (series) 4) Whether such addition is sustainable in the absence of commensurate undisclosed cash or valuables or assets or unexplained expenditure. 5) Whether there is enough corroboration in support of additions made.

7.1.1 The first objection of the assessee is that the material AIBSG/01

and AIBSG/02 was seized from the residence of Sri S. Y. Ghorpade, father

of Bharat S Ghorpade, at Gaurihara, Gandhi Colony, Hospet and the

entire proceedings was conducted in their presence culminating into

31 ITA Nos. 832 to 835/Bang/2015 seizure. The said premises did not belong to the assessee nor was the

seized material written by the assessee. These objections were raised /

taken immediately after the search on 26.10.2010 and 19.11.2010 before

the DDIT (Inv), Unit II (2) (placed at Paper Book pages 1 & 2) who

conducted the search and the assessee categorically stated that the

material was seized from the residence of Sri S.Y. Ghorpade; the

statement given on the date of search was not proper and copies of the

seized material was sought in order to offer further clarification. It was

also submitted that it was categorically mentioned that no cash sales

transactions were done. Even after issue of notice under Section 153A of

the Act, objections were raised that the said seized material did not

belong to the assessee M/s. KMIORE or Ambika Ghorpade and a reply

vide letter dt.30.3.2012 (copy placed at pages 17 & 18) was filed while

complying with the notice under Section 153A of the Act. The relevant

portion thereof is as under :-

“ It is further clarified that the premises at Gaurihara, Gandhi Colony, Hospet does not belong to Kartikeya Manganese and Iron Ore Pvt. Ltd. It is the residential premises of Mr. S.Y. Ghorpade. The material seized at the premises does not belong to the assessee.”

32 ITA Nos. 832 to 835/Bang/2015 7.1.2 The Assessing Officer considered the objections of the assessee

and held that the material seized from Ambika Ghorpade and the

assessee M/s. KMIORE belongs to Bharat S. Ghorpade and thereafter also

issued a notice, under Section 153A r.w.s. 153C of the Act to ‘BSG’ for

Assessment Years 2005-06 to 2010-11. In this background, it is the

contention of the assessee that since the seized material, more

specifically AIBSG/01 and AIBSG/02 did not belong to the assessee or

Ambika Ghorpade (‘AKG’), no assessment / addition could have been

made on the basis of the said material. The learned Authorised

Representative for the assessee further submitted that even if the name

of the assessee is found in the seized material, the same cannot be used

against the assessee as has been held in the following judicial

pronouncements :- 1) Vijaybhai N. Chandrani vs. ACIT – (333 ITR 436) - Guj HC 2) Hon’ble Bangalore ITAT in Senate vs. DCIT – (181 TTJ 562) 3) P.Srinivas Naik vs ACIT - 114 TTJ 856 - ITAT Bangalore. 4) PCIT vs Vinita Chaurasia – (394 ITR 758) - DEL HC.

33 ITA Nos. 832 to 835/Bang/2015 7.2 Per contra, the Ld. Standing Counsel for Revenue objected to the

assessee's submissions, as in para 4(c) and 4(d) of the written

submissions which are extracted as under :- “ 4. (c) The further contention that the material in the form of A/BSG/01 and A/BSG/02 does not belong to the assessee is an afterthought when the person in charge of the business of the assessee and the Managing Director have admitted the same, the above submission is only for the sake of argument without any substance.

7.3.1 From the above discussion, what is not in dispute is that the

impugned seized material AIBSG/01 and AIBSG/02 were found in the

premises of the BSG and not in the premises of the assessee. The

Assessing Officer himself has held that the seized material AIBSG/01 and

AIBSG/02 did not belong to the assessee but rather belongs to BSG.

Having held that the said seized material belonged to BSG, the Assessing

Officer at a later date issued the requisite notice and completed the

34 ITA Nos. 832 to 835/Bang/2015 assessment in his case making substantial additions, largely relying on

the same seized material. The judicial pronouncements cited by the

assessee and extracted above spells out the legal position that unless the

material belongs to the assessee, the same cannot be used or held

against the assessee in proceedings under Section 153A or 153C of the

Act. Thus the additions made by the Assessing Officer based on seized

material AIBSG/01 is unsustainable for this reason.

8.1 The second objection of the assessee is that the seized material

AIBSG/01 as per the panchanama contained 72 total pages and 72

written pages whereas the copies supplied to the assessee contained 90

written pages. The assessee has been seeking clarification as to how

excess pages, other than that mentioned in the seized material were

made available to it. Similarly in the case of seized material in AIBSG/02

wherein as per the Panchanama the total pages were 150 and written

pages were 150, the written pages supplied to the assessee were 182.

Thus, in both the aforesaid seized material, the copies thereof given to

the assessee appears to be in excess of the seized material.

35 ITA Nos. 832 to 835/Bang/2015 8.2 In response to the above objections raised by the assessee, the ld.

standing counsel has submitted as under in para 5(f) of written

submissions :-

“ 5.(f) The contention raised with respect to the discrepancies in the pagination of the seized material is hyper technical, afterthought and baseless. It is an attempt made by the assessee to deviate from the main issue. When the same material was provided to the assessee the same has been admitted and this is an attempt to overcome the admission made on oath. The entire set of seized material has been placed before this Hon’ble Tribunal and the authenticity can be examined. Each and every page of the document has been authenticated by Mr Bharat S Ghorpade by affising signature and date, from whose possession the same has been seized. In such a situation, the assessee is not correct in questioning the authenticity of the seized material that too in a situation where majority of the entries tallied with the books of accounts maintained by the assessee.” 8.3 The objection of the assessee is that the copies of seized

documents are in excess of the number mentioned as seized in the

Panchanama. The reply of Revenue is that all the seized material are

properly numbered, serialized, are genuine and that the objection put

forth by the assessee is hyper technical in nature. If the copies of the

seized documents supplied are in excess of the actual documents seized,

as seemed to be suggested by the assessee, the assessee could easily

point out the documents that don’t belong to it. This has not been done.

36 ITA Nos. 832 to 835/Bang/2015 It could be merely a case of wrong mention of numbers in the

Panchanama. As long as the assessee has not pointed out any document

as not being genuine, this objection is technical and has no bearing on

the substantive issues raised in the appeal. We, therefore, dismiss the

objections raised in this regard.

9.1.1 The Third Objection of the assessee is regarding the statements

recorded based on the seized material AIBSG/01 and AIBSG/02 from BSG,

AKG and KMG. The details in this regard are as under :

“ Thirdly, kindly refer to the Panchanama available at page 218 of the Paper book (PB) – warrant being drawn in the case of the assessee to search the residential premises of S.Y.Ghorpade/Bharat S Ghorpade at Gaurihara, Gandhi Colony, Hospet. The said premises does not belong to the assessee but to SY Ghorpade, father of Bharat S Ghorpade. The search commenced on 28.09.2010 at 9.30 am and the proceedings were closed on 29.09.2010 at 7.45 am. During the course of search proceedings a statement u/s 132(4) of the Act was recorded of Bharat S Ghorpade commencing at 11.30pm on 28.09.2010 questioning him on the exhibit marked A/BSG/01 & A/BSG/02. The oath statement is signed by Bharat S Ghorpade at early hours on 29.09.2010 (page 377 of PB). Page 220 PB contains the list of inventory of books of accounts, documents etc found and seized during the search at Hospet supra. The inventory seized marked as A/BSG/01 contains folder of loose sheets (total pages 72 & written pages 72) & A/BSG/02 contains folder of loose sheets (total pages 150 & written pages 150). The search was also conducted in the case of Ambika Ghorpade at C-1102, Mantri Elite Apartments, Bannerghatta Road, Bangalore (page 422 PB). The search commenced on 28.09.2010 at 9.30am and the proceedings

37 ITA Nos. 832 to 835/Bang/2015 closed on 29.09.2010 at 8.45am. During the search proceedings the statement on oath of Kartikeya M Ghorpade (husband of AmbikaGhorpade and Managing Director of KMIORE) was recorded on oath questioning him on certain pages of the seized material marked as A/BSG/01 & A/BSG/02 (page 408PB). The statement u/s 132(4) was also recorded of AmbikaGhorpade at the same time during the search proceedings questioning her on certain pages of the seized material marked as A/BSG/02 (page 420 PB). In view of the above factual position, it is incorrect to say that the seized material shown to Kartikeya M Ghorpade/Ambika Ghorpade while recording statement is the same seized material which was seized in the case of Bharat S Ghorpade at his father SY Ghorpade residence as the said seized material was still in Hospet on 29.09.2010 till 7.45am. Since the statements were taken from Kartikeya M Ghorpade and Ambika Ghorpade in the wee hours of the day and there being no clarity on the basis on which the statements were recorded, the assessee represented by its Directors (Kartikeya M Ghorpade and Ambika Ghorpade) wrote to the Investigation wing seeking copies of seized material based on which their statements were recorded (page 1 & 2 PB). Till date the said copies have not been made available to the assessee neither an opportunity to rectify the statements has been given. Assessee’s submissions regarding the same before the AO are found in page 90 to 92 relevant page 92 ;pages 115 to 122 PB, relevant page 117 PB.” 9.1.2 The essential contention of the assessee in this objection is

that the additions have been made in the assessee's hands based on

certain statements recorded from Kartikeya M Ghorpade and

Ambika Ghorpade, wherein these two persons have reportedly

admitted to earning of undisclosed income, after they were

confronted with the documents in question. It is the assessee's

38 ITA Nos. 832 to 835/Bang/2015 contention that these documents were found in the premises of

Bharat S Ghorpade, which was in another town far away and hence

the claim of Revenue that these documents were shown to these

persons were wrong and further the copies of these statements

were not given to the assessee.

9.2 Per contra, Revenue contends that the objections raised by

the assessee in this regard is both immaterial and irrelevant. It was

submitted that what is relevant here is whether these two persons

were confronted with the material found and seized in the course

of search and this aspect is not disputed by the assessee. In view of

the present technology available for transmission of

correspondence and material electronically, the contentions of the

assessee are illogical and baseless.

9.3.1 We have considered the rival submissions made in this regard,

perused the statements recorded during the search action and also the

correspondence entered into by the assessee with the Department after

the search action. The undisputed facts are that Kartikeya M Ghorpade

39 ITA Nos. 832 to 835/Bang/2015 and Ambika Ghorpade had admitted to earning of certain undisclosed

income during the course of search action. That the disclosure /

admissions made by them was based on certain documents purportedly

shown to them also comes out clearly from the statements. In

contentions put forth, the assessee has cast serious doubts as to

whether the disclosure was made based on documents purportedly

shown to these two persons ‘KMG’ and ‘AKG’ by elaborately citing the

time of search, the time of recording the statements and alleging the

impossibility of showing documents which were in another premises

which was far away.

9.3.2 Be that as it may, it is settled principle that the assessment of

income has to be based on evidence. The statement recorded during

search action can be relied upon provided it is supported by evidence

collected during search action, However, mere reliance on a statement

recorded during search action, that too of third persons, for making

additions in the case of the assessee is not appropriate. More

particularly so, in the circumstance of the case on hand where the

assessee has claimed that the statement was not based on any

40 ITA Nos. 832 to 835/Bang/2015 documents. It is also settled principle that when documents /

statements are used against the assessee, copies of the same have to be

provided and opportunities afforded to the assessee to explain the

statements made. Mere reliance on a statement recorded in the wee

hours of the day in the course of search action without any further

efforts to bring in corroborative evidence and afford opportunities to the

assessee and to the deponents also to explain or rebut or correct the

statements is inappropriate. On an appraisal of the record before us, in

our view, the Assessing Officer has faultered in not following the rule of

law and the procedures prescribed in this regard by judicial

pronouncements. In this context, the reliance placed on the follwoing is

appropriate :-

(i) Pullangode Rubber Produce Co. Ltd. Vs. State of Kerala & Another (91

ITR 18) (SC) (Paper Book pages 189 & 190) wherein the Hon'ble Court

observed that -

“ An admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect.”

41 ITA Nos. 832 to 835/Bang/2015 (ii) CBDT Instruction No.F.No.286/2/2003/IT(Inv) dt.10.3.2003 (Page 167) – on confessions of additional income during the course of search and seizure and survey operations.

(iii) Sahil Study Circle Pvt. Ltd. Vs. DCIT (179 TTJ 1) (Delhi ITAT) (Paper Book pages 337 & 338) wherein it was observed and held as under :-

“ ………CIT (A) erred in upholding the conclusion of the AO based only on the admission during survey made by Shri Suri at the wee hours (i.e. between 3.00 AM – 4.00 AM) to fasten the liability when Shri Suri was able to explain and reconcile the receipts. The AO did not bother to enquire into the veracity of the explanation given by the assessee. The AO could have easily called for details from the branches of the assessee at Janakpuri and tested the explanation given by the assessee in respect to inter- branch transfer of cash to the Head Office. Without doing so, the addition made solely on the basis of admission during survey cannot be upheld as held by the Hon’ble Supreme Court in CIT vs. S. Khader Khan Son (supra) and in a similar case of Hon’ble jurisdictional High Court in CIT vs. Dhingra Metal Works (supra). Therefore, the orders of the lower authorities are bad in law and are set aside on this issue. These grounds are allowed. CIT v. S. Khader Khan Son [2012] 254 CTR 228;…….” In the light of the above, the objection raised by the assessee is

upheld.

10.1 The next objection of the assessee is that the material AIBSG/01

and AIBSG/02 are a bunch of loose sheets and cannot be relied upon. It

is the assessee's contention that loose sheets are not evidence because

they are neither books of account nor are they maintained regularly and

42 ITA Nos. 832 to 835/Bang/2015 therefore in the absence of adherence to the twin requirements of Sec.

34 of the Evidence Act, no liability under law can be brought about

based upon the loose sheets and therefore they cannot be relied upon

for framing of assessments. In support of the above contentions, the

assessee had placed reliance on some judicial pronouncements.

10.2.1 We have considered the submissions and contentions put

forth in this regard and perused and carefully considered the material on

record. We have already held that the action of the Assessing Officer is

making additions based on seized material in AIBSG/01 & AIBSG/02 are

not appropriate as the Assessing Officer has not followed the due

process and procedure and has not brought on record any corroborative

evidence to support the statements made. Therefore, this issue and

contention raised by the assessee that the loose sheets in the two seized

bundles AIBSG/01 and AIBSG/02 does not constitute actionable evidence

has been rendered academic and we therefore refrain from making any

observation and adjudication on this issue.

43 ITA Nos. 832 to 835/Bang/2015 10.3.1 Similar arguments / contentions as above have been put forth

by both parties for Assessment Years 2009-10 to 2011-12 in respect of

appeals in ITA Nos.833 to 835/Bang/2015 since the issues and facts are

similar. Both parties have basically relied on the submissions made in

Assessment Year 2008-09, for these Assessment Years 2009-10 to 2011-

12, which have been heard and considered at length by us.

10.3.2 We have considered the rival submissions and perused and

carefully considered the material on record and the judicial

pronouncements cited. We find that the facts and issues before us, in

the case on hand for Assessment Years 2009-10 to 2011-12 are similar to

those in the appeal for Assessment Year 2008-09. Since we have decided

the issue in the assessee's appeal in ITA No.832/Bang/2015 for

Assessment Year 2008-09 in favour of the assessee, the impugned issues

in the appeals in ITA Nos.833 to 835/Bang/2015 for Assessment Year

2009-10 to 2011-12 are also held and allowed in favour of the assessee

and therefore the additions of Rs.17,79,43,250 for Assessment Year

2009-10; Rs.87,50,54,416 for Assessment Year 2010-11 and

Rs.9,58,64,287 for Assessment Year 2011-12 being part of alleged cash

44 ITA Nos. 832 to 835/Bang/2015 receipts of Rs.64,00,91,973 are unsustainable and are accordingly

deleted.

11.1 On the issue of bogus expenses, applicable for Assessment Years

2009-10 and 2010-11, the brief facts of the matter are as under :-

The additions on this issue appears to have been done solely on the

basis of certain statements, said to have been recorded from assessee's

employees, namely, K.V. Balan, Antony Balaraj and Bharat S Ghorpade

(‘BSG’). On this issue, certain material seized from BSG’s residence is

mentioned in page 55 of the order of assessment for Assessment Year

2008-09. Another material referred to is on page 15 of the seized

material AIKMOREIS/5, both of which are mentioned at pages 55 & 57 of

the order of assessment. On this issue the addition made in the hands of

the assessee and AKG are as under :-

Asst. Year M/s. KMIORE (Rs.) AKG (Rs.) 2009-10 1,85,00,000 28,96,125 2010-11 2,67,71,921 78,57,020

45 ITA Nos. 832 to 835/Bang/2015 11.2 The assessee's contentions as submitted in their written

submissions are as under :

“ The AO has made addition of Rs. Rs.1,85,00,000/- for AY 2009-10 and Rs.2,67,71,921/- for AY 2010-11 stating that the assessee has raised certain bogus claim for expenditure and disallowed the same. In doing so he has relied on the statements of Mr.K.V.Balan and Mr.Antony Balaraj. It is submitted that all the expenses are duly recorded in the books of accounts and the payments have been made through the regular banking channels. The seized material A/KMIORE/S/5 referred by the AO is not incriminating as the expenses referred therein and the TDS calculation is part of the books of accounts. No expenses can be disallowed merely on the basis of statement of third parties. The copies of the statements were not given to the assessee. No opportunity for cross examination has been provided to the assessee and in the absence of the same statements cannot be relied on.

In addition to the above, the assessee relies on the following case laws: On the issue of assessment made based on third party statements:

PCIT vs Saumya Construction P Ltd – (387 ITR 529) - GUJ HC CIT vs SMC Share Brokers Ltd - (288 ITR 345) - Delhi HC”

11.3 On his part, the standing counsel for the Department submitted

that the Department’s case is discussed at pages 54 to 65 of the order of

assessment for Assessment Year 2008-09. Revenue has further sought to

buttress its arguments in written submissions in para 2(vii),(m) and (n)

which are as under :-

“ (a) Bogus expenses:-The entire operations of the mines owned by the assessee are being carried out by Bharat Mines and Minerals as such the assessee has no expenses to be incurred except administrative in miscellaneous expenses. In the course of

46 ITA Nos. 832 to 835/Bang/2015 search at residence of Mr Bharat Ghorpade and office premises of the assessee setting bills pertaining to the contract works were found and seized and the same is placed at page 55 of the assessment order reflecting adjustment bills in the name of the employees of the company. (b) Similar entries were found for the Assessment Year 2010–11 in the notebook maintained by the assessee and same is scanned at page 57 of the assessment order reflecting generation of bills in the names of spouses of the employees by the assessee. The statement of employees (accountant) is extracted at page 59 and 60 admitting the contractors are either the employees of the company or the spouses or relatives. Further admitted generation of bills in the office of the assessee (relevant portion of statement at page 61 and 62 of the assessment order). An analysis it is found the contract work is only accommodation entries to avoid payment of tax.”

11.4.1 We have heard the rival submissions and perused and carefully

considered the material on record. According to the assessee, the

payments for the aforesaid expenses have been made through normal

banking channels by way of account payee cheques and are duly

recorded in the assessee's books of account. Department’s reliance is

on the material seized from ‘BSG’ mentioned at page 55 of the order of

assessment. A perusal of the same shows that certain sums are

mentioned against various names and when this is compared with the

seized material AIKMIOREIS/5 mentioned in page 57 of the order of

assessment, the same do not match; as the amounts mentioned and

names of parties are different. Seized material AIKMLOREIS/5 gives

47 ITA Nos. 832 to 835/Bang/2015 details of gross amounts and TDS and do not match with the material

found with BSG and as mentioned earlier, a comparison of the two does

not match and therefore does not bring out any clarity or corroborate

each other or evidence any withdrawal of cash or that anything is amiss

as alleged. Further, in his statement Bharat S Ghorpade (BSG) states that

he does not know anything about this. Similarly, Sri Balan was not able

to explain on account of lack of knowledge since he was not in charge of

administration. Sri Antony Balaraj has stated that he has not carried out

any contract work on behalf of the assessee company and the assessee

has also pointed out certain discrepancies / contradictions in his

statements.

11.4.2 These could have been clarified / confronted to the assessee,

by the Assessing Officer. But it appears that neither has the assessee

been provided with copies of statements recorded from the aforesaid

persons nor been allowed cross examination. From an appreciation of

the material on record, it appears to us that the situation which emerges

is that the seized material from BSG and AIKMIOREIS/5 utilised by the

Assessing Officer to make the disallowances on account of bogus

48 ITA Nos. 832 to 835/Bang/2015 expenses do not support or corroborate one another. The statements of

Sri Antony Balaraj and Sri K.V. Balan recorded by the Department have

not been supplied to the assessee for rebuttal and therefore it is trite

that the same cannot be used against the assessee by the Assessing

Officer. Further, opportunity for cross-examination of Sri K.V. Balan and

Sri Antony Balaraj has also not been provided to the assessee by the

Assessing Officer. In such cases, no addition can be made as has been

held by the Hon'ble Delhi High Court in the case of CIT Vs. SMC Share

Brokers Ltd. (288 ITR 345) as under :

“In the absence of the third party, being made available for cross-examination despite repeated requests by the assessee, his statement could not be relied upon to the detriment of the assessee and the Tribunal was justified in setting aside the block assessment.” 11.4.3 The above decision of the Hon'ble Delhi High Court has been

relied upon by the co-ordinate bench of this Tribunal in the case of M/s.

Obulapuram Mining Company Pvt. Ltd. Vs. DCIT in ITA

No.653/Bang/2015 dt.29.7.2016, wherein the co-ordinate bench has held

that disallowances made on the basis of statements of persons not being

made available for cross-examination cannot be used against the

49 ITA Nos. 832 to 835/Bang/2015 assessee and hence such disallowances are not sustainable. Even

otherwise, we have already held in the pre-paragraphs of this order

(supra) that seized material found in the premises of third person cannot

be used against the assessee without any corroborative evidence that

the seized material belongs to the assessee. Therefore these additions

fail on this count as well. In view of the facts and circumstances of the

case and the judicial pronouncements referred to above, the additions of

Rs.1,85,00,000 for Assessment Year 2009-10 and Rs.2,67,71,921 for

Assessment Year 2010-11 made on account of bogus expenses are

deleted.

to 2011-12 are partly allowed.

Order pronounced in the open court on the 10th day of April, 2018.

Sd/- Sd/- (SUNIL KUMAR YADAV) (JASON P BOAZ) Judicial Member Accountant Member Bangalore, Dt.10.04.2018

*Reddy gp

50 ITA Nos. 832 to 835/Bang/2015

Copy to : 1 Appellant 4 CIT(A) 2 Respondent 5 DR. ITAT, Bangalore 3 CIT 6 Guard File

Senior Private Secretary Income Tax Appellate Tribunal Bangalore.