THE ACIT-CENTRAL-2, INDORE vs. SHRI YOGESH KUMAR HOTWANI, MANDSAUR

आदेश /O R D E R

PER O.P. MEENA, ACCOUTANT MEMEBR. These five cross appeals by the Revenue and assessee

are directed against the consolidated order of CIT(A)-III, Indore

dated 18.03.2016.

I.T.(SS)A.Nos. 91/Ind/2016 – A.Y. 2008-09:

On the facts and in the circumstances of the case,

the ld. CIT(A) erred in deleting the addition made

by AO of Rs. 5,88,15,870/- on account of

unrecorded and unexplained transactions appeared

in LPS-14 to LPS-21 without appreciating the facts

and evidences brought into light by the AO during

assessment proceedings.

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 3 of 72

I.T.(SS)A.Nos.92/Ind/2016 – A.Y. 2009-10:

On the facts and in the circumstances of the case,

the ld. CIT(A) erred in deleting the addition made

by AO of Rs. 69,500/- on account of unrecorded

and unexplained transactions appeared in LPS-14

to LPS-21 without appreciating the facts and

evidences brought into light by the AO during

assessment proceedings.

I.T.(SS)A.Nos. 93/Ind/2016 – A.Y. 2010-11:

On the facts and in the circumstances of the case,

the ld. CIT(A) erred in deleting the addition made

by AO of Rs. 81,76,821/- on account of unrecorded

and unexplained transactions appeared in LPS-14

to LPS-21 without appreciating the facts and

evidences brought into light by the AO during

assessment proceedings.

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 4 of 72

I.T.(SS)A.Nos. 94/Ind/2016 – A.Y. 2011-12:

On the facts and in the circumstances of the case,

the ld. CIT(A) erred in deleting the addition made

by AO of Rs. 3,97,87,559/- on account of

unrecorded and unexplained transactions appeared

in LPS-14 to LPS-21 without appreciating the facts

and evidences brought into light by the AO during

assessment proceedings.

I.T.A.No. 674/Ind/2016 – A.Y. 2012-13 :

On the facts and in the circumstances of the case,

the ld. CIT(A) erred in deleting the addition made

by AO of Rs. 2,95,66,927/- on account of

unrecorded and unexplained transactions appeared

in LPS-14 to LPS-21 without appreciating the facts

and evidences brought into light by the AO during

assessment proceedings.

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 5 of 72

I.T.(SS)A.Nos. 117/Ind/2016 – A.Y. 2008-09 :

On the facts and in the circumstances of the case,

the impugned year.

I.T.(SS)A.Nos. 118/Ind/2016 – A.Y. 2009-10 :

On the facts and in the circumstances of the case,

impugned year.

I.T.(SS)A.Nos. 119/Ind/2016 – A.Y. 2010-11 :

On the facts and in the circumstances of the case,

the impugned year.

I.T.(SS)A.Nos. 120/Ind/2016 – A.Y. 2011-12 :

On the facts and in the circumstances of the case,

the impugned year.

I.T.(SS)A.Nos. 680/Ind/2016 – A.Y. 2012-13 :

On the facts and in the circumstances of the case,

which comes to 4.76 % out of the five

assessment years under consideration,

rounded to 5.00 % be applied at uniform rate

on the Total Receipts for each of the

assessment years from assessment year 2008-

09 to 2012-13, resulting into addition of Rs.

14,67,762/- towards net profit element for the

impugned year.

additional income in the return for each of the

assessment years from AY 2008-09 to 2012-13

towards net profit element, more particularly

when trading in agri-products (garlic & onion)

is the only source of income for the assessee.

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 11 of 72

5% instead respective NP rate on the basis of audited accounts. Therefore, these grounds of appeal of Revenue and assessee are being discussed in consolidated manner and being disposed by this common order for the sake of brevity and convenience. 5. Briefly stated, the facts of the case are that the

assessee is individual and belongs to Hotwani family of

Mandsaur having source of income from business of

agricultural commodities, share and profit in partnership firm,

who also deal in agricultural activities and interest. The

assessee is carrying on its business in the name of proprietory

concern named and style as M/s. Ambika Trading Co. A

search and seizure operation u/s 132 of the Act was carried

out on 19.01.2012 at the business as well as residential

premises of the assessee group. During the course of search,

Shri Shiv Kumar Hotwani, father of the assessee being one of

the senior members of the extended family has made an ad

hoc surrender of Rs. 3 crores in the name of the assessee and

out of overall ad hoc surrender of Rs. 14 crores for the group

at his place of residence on behalf of his family. A search and

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 12 of 72

seizure warrant u/s 132 was also issued in the name of the

assessee. Therefore, notice u/s 153A of the Act was issued for

the assessment year 2006-07 to 2011-12, in response to

which the assessee has filed the returns of income which

included additional income computed as detailed below :-

Particulars A.Y. A.Y. A.Y. A.Y. A.Y. A.Y. A.Y. TOTAL. 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 Total of - - 64,749,380 70,000 8,197,821 35,169,030 29,355,236 137,541,467 Receipts from LPS 14 to LPS 21 Total of - - 64,905,87 37,522 5,019,785 44,993,759 29,566,927 144,523,863 payments from LPS14 to LPS 21 Turnover as - - 169,394,597 92,017,993 188,291,006 307,639,671 239,997,166 per audited accounts for each year N.P. Ratio as - - 0.24% 0.48% 0.25% 0.35% 0.37% per Tax Audit Report for each year Return on - - 2.57% 2.97% 2.03% 3.00% 4.33% investment (RoI) Ratio based on Tax Audit Report Investment - - 5,938,000 17,000 1,000,000 4,160,000 2,500,000 required based on RoI mentioned above Incremental - - 5,938,000 - - - - Investment for each year Offered in - - 152,000 500 21,000 125,000 - 298,500 153A returns for profit element based on NP ratio above Offered in - - 5,938,000 - - - - 5,938,000 153A return for initial peak investment Offered in - 600,000 732,000 - - - - 1,332,000 153A returns towards other discrepancies noticed post search Total amount - 600,000 6,822,000 500 21,000 125,000 - 7,568,500 offered in

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 13 of 72

153A return Total amount - - - - - - 225,000 225,000 offered in regular return u/s139 Total amount - - - - - - - 7,793,500 offered by the assessee Income 1,28,770 3,07,130 2,98,230 3,92,190 4,60,850 9,90,210 10,30,920 shown in regular return before search

return for assessment year 2012-13 was filed on 31.03.2013

declaring total income of Rs. 10,30,920/-, which includes an

income of Rs. 2,25,000/- as voluntarily offered by the

assessee. The AO noted that during the course of search,

various loose papers as LPS-14 to LPS-21 were found and

seized from the residential premises of the assessee, which are

writing pads containing various details of sales and purchases

of garlic and onion. Therefore, the assessee was asked to

explain the transaction appearing on the loose papers. In

compliance thereof, the assessee filed his reply vide letter

dated 17.02.2014, which has been reproduced by the AO at

para 12.1 of his order. However, the explanation offered by the

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 14 of 72

assessee was not found acceptable by the AO for the reasons

that gross profit and peak theory can be applied where the

assessee is able to substantiate all the receipts recorded in

loose papers and papers were only in the nature of

sales/turnover, are as elaborately discussed in para 12.2 of

the assessment order. Briefly, the reasons for rejection of reply

can be summarized, as the net profit rate applied on

unaccounted receipts by the assessee was not found

acceptable and also the assessee’s theory of peak application

and benefit of telescoping was not found acceptable as the

same was according to the AO was not supported by proper

documents. The AO also noted that the assessee has taken the

credit of undisclosed income offered in earlier years

(telescoping) without specifying the detailed working and have

been in the nature and component of income offered in earlier

years. Therefore, the AO was of the view that peak theory

applied by the assessee is not correct and the total

undisclosed income offered by the assessee does not cover this

amount. Accordingly, the AO considered the higher figure for

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 15 of 72

making additions out of unrecorded receipts and recorded

payments as unexplained receipts or unexplained payments as

the case may be. Accordingly, the AO has made the addition

as per chart given at para 12.3, which is as under :-

Particulars A.Y.2008 A.Y.2009- A.Y.2010-11 A.Y.2011- A.Y.2012- 10 12 13 Total 64749380 70000 8197821 35169030 29355236 Receipts from LPS 14 to LPS 21 Total of 64905870 37522 5019785 44993759 29566927 payments from LPS 14 to LPS 21 Higher of 64905870 70000 8197821 44993759 29566927 the above Less: 6090000 500 21000 125000 0 Already offered by the assessee on the above account` Difference 58815870 69500 8176821 44868759 29566927 to be added

search proceedings, Shri Shiv Kumar Hotwani has made a

disclosure of income of Rs. 3 crores in the name of Yogesh

Kumar i.e. the assessee, Shiv Kumar Hotwani and M/s.

Sambodhi Foods and Dehydrates and Rs. 7 crores in the name

of Kamlesh Kumar Hotwani and Rs. 4 crores in the name of

Prakash Chand Hotwani aggregating to Rs. 14 crores.

However, on perusal of return of income filed in response to

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 16 of 72

Section 153A, it was found that the assessee has offered Rs.

77,93,500/- as additional income in his return of income for

the assessment year 2008-09 to 2012-13 as against

undisclosed income of Rs. 3 crores admitted by Shri Shiv

Kumar Hotwani on behalf of the assessee. It was explained to

the AO vide letter dated 17.02.2014 that the assessee has

disclosed the sum of Rs. 77,93,500/- and retracted balance

surrender of Rs. 2,22,06,500/-( 3,00,00,000 (-) 77,93,500 ).

However, the AO did not accept this retraction but observed

that the addition on account of undisclosed/unexplained

income is being made of Rs. 14,14,97,877/-on account of said

material (as per discussion in para 12.3) which is more than

the voluntarily disclosed amount by Shri Shiv Kumar Hotwani

on behalf of the assessee u/s 132(4) i.e. Rs. 3,00,00,000/-. No

further addition is being made on this account. Aggrieved with

the order, the assessee has filed the appeal before the CIT(A).

the assessee in respect of aforesaid year by taking various

grounds of appeal, which have been reproduced by the ld.

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 17 of 72

CIT(A) in the appellate order from para 4 – page nos. 5 to 15.

The ld. CIT(A) has also reproduced the findings of the AO for

not accepting the assessee’s explanation at para 4.1 – page 15

to 16. The ld. CIT(A) noted that during the course of

assessment proceedings, the assessee after going through

each and every entry recorded in seized documents LPS-14 to

LPS-21 worked out the total receipts and payment for every

year which has been taken as the basis for making the

addition of Rs. 5,88,15,870/- for assessment year 2008-09,

Rs. 69,500/- for assessment year 2009-10, Rs. 81,76,821/-

for assessment year 2010-11, Rs. 4,48,68,759/- for

assessment year 2011-12 and Rs. 2,95,66,927/- for

assessment year 2012-13 to the total income. In para 12 of the

assessment order, the AO stated that LPS-14 to 21 are writing

pad containing various details of sales and purchase of garlic

and onion. To understand the entries recorded in the seized

loose papers as appearing in paper book page 262 volume -01,

the ld. CIT(A) noted that this page is a writing pad dated

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 18 of 72

02.10.2010 on the right hand top. The observations made by

CIT(A) in para 4.5.7 are reproduced as under :- “ 4.5.7 In the third column on PB 262, the amounts of 450/ - to Maruti, 800/- to Nahru and 1470/- to Ghanshyam are the payments made to labour. Against amount of 50000/-, Mandi is written which is the amount paid for the purchases made. Amount of 1591/- is the freight paid for Neemuch. Amount of 12000/- is the motor freight paid for vehicle no. MP 44 HA 0997. Amount of 50/- is paid for 'Kanta' i.e. weighing charges. Amount of 850/- is paid for Hammali, i.e. cartage for loading/unloading of the agri-goods. Amount of 1000/- is paid for diesel for the tractor which the appellant uses. Amount of 30665/ - is paid to labour, details of which are written for each individual labour on the next two pages at PB 263 & 264. The labour is paid for sorting, grading,

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 19 of 72

cleaning, shifting of the agri-goods before the sale is made. 4.5.8 After all the payment entries, amount of 98876/- is written as 'Total' which is the total amount paid on 02/10/10. From the total of receipt side amounting to 252620/-, the balance figure of 153744/- is arrived at and written as closing cash balance for the day which is then carried forward to the next date. This carry forward balance can again be verified from the page of next date at PB 265, where on the top left side, this amount of 153744/- is written. 4.5.9 From the details of amounts paid which are self-explanatory, it is evident that expenses relating to purchase/sale of agri-goods dealt by the assessee are recorded, viz. labour, mandi, hammali, kanta, diesel etc. The nature of transactions from the entries recorded directly relate to the sale/purchase (trading) business of

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 20 of 72

garlic and onion of the assessee which remained to be accounted in the regular books of accounts. 4.5.10 From the above narrative of the seized papers as a sample, the contention of the assessee is evidently demonstrated which had been submitted before the Assessing Officer also. Few more samples from the seized papers are narrated below for clear understanding of the mater. 4.5.11 PB 222 (Vol. 01), is a page of one of the seized writing pads, dated 14/12/10 on the right hand top. There are four columns appearing on the page which divides the page into two parts. First two columns from the left side of the paper contain entries recorded for the brought forward balance of cash from the immediately preceding date and cash received during the day first column contains amounts written in figures and second column, a brief description for the nature of amounts received. Last two columns of the paper contain entries

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 21 of 72

recorded for various payments made during the

day and the closing cash balance to be carried

forward to the next date - column third contains

amounts written in figures and fourth column

contains a brief description for the nature of

amounts paid. Both the columns for amounts, viz.

first and third columns, at their bottom have totals

made which equals for the purpose of reconciliation

of transactions at the end of the date.

4.5.12 The typed English version of the above

referred paper available is as under :-

14.12.2010

Amount Description for Amount Description for Receipts Payments 124039 Cash 1000 Expenses 1000 SFD 1500 Yogi 3500 Total 120539 Total 124039 Total

15/12/10 120539 Cash 50 Expenses 75000 NEPL 780 Sundry 195539 Total 500 Nahru 1200 Rathi Transport 300 Bano Bee

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 22 of 72

500 Anisa 300 Aabida 500 Ruksana 600 Ruksana 400 Shakira 1780 Gulam 500 Laxman 75000 Mandi 82550 Total 112989 Cash 195539 Total

120539 is the closing balance of cash in hand on

14/12/10 which is carried forward to 15/12/10.

Likewise, 112989 is the closing balance of cash in

hand on 15/12/10 which is carried forward to the

next day.

4.5.13 The typed English version of the paper

available at PB 223 is as under- 16/12/10 Amount Description for Amount Description for Receipts Payments Cash Neemuch Motor 112989 1400 Freight Total Hammali 112989 80 20 Kanta Gulabchand 2000 Safari Diesel 1000 Yogesh 1100 Labour 32085 Raju 560

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 23 of 72

Kailash 690 1310 Bhawna Bill (refreshment) Labour 87 Labour 16 Aslam 550 Labour 910 Labour 190 Labour 700 Shankar 280 Banshi 1670 Painter 680 Total 49925 Nepal Singh 1000 Mandi 4000 Total 54925 Cash 58064 Total 112989

4.5.14 PB 224 contains entries for payments

made to each individual labour on 16/12/10,

totaling Rs. 32085/- which is reflected in the

above table. The same is also reproduced in

typed English version -

Break up of labour paid for Amount Rs. 32085 above - Labour 1010 Yasmi 830 Rabiya 920 Salma 920 155 Shabnam Mobin 415

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 24 of 72

Jambu 905 Ramkanya 1075 Sheela 1140 Manju 980 Guddi 925 Vishnu 1110 Sugan 565 Kamla 555 Lila 70 Dhapu 560 Geeta 950 Lal 450 Kamla 980 Hussain 880 Rusar 820 Sunil 670 Rusar 50 Jarina 380 Ruksana 110 Saeed 860 Kamla 510 Saeed 140 Bheru 1180 Amjad 1380 Jayda 700 Rani 630 Sita 1245 Chanda 1155 Shanu 690 Anil 1330 Attarsingh 1540 Krishna 1060 Nepal Singh 1030 Shanu 300 Total 32085

4.5.15 Referring to another paper PB 153 (Vol.

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 25 of 72

01), it is a page of one of the seized writing

pads, dated 09/07/10 on the right hand top.

4.5.16 The typed English version of the above

referred paper available at PB 153 is as

under-

09/07/10 Amount Description for Amount Description for Payments Receipts 15565 Cash 550000 Mandi 550000 ATC 120 Hammali Delhi 565565 Total 115 Shyam 700 Petrol 595 Nahru 5 551535 Total 14030 Cash 565565 Total

4.5.17 On the payment side, 550000/- is paid

for Mandi purchase and the same is realized

as sale in the name of ATC (Ambika Trading

Company). Amount of 120/ - has been paid

for hammali (cartage). Amount of 115/ - &

595/- to labour - Shyam & Nahru. Amount of

700/- paid for petrol expenses. Total of

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 26 of 72

payments made in the day is written at 551535/- and the closing balance of 14030/- is arrived at after considering the brought forward balance of cash of 15565/ - and sale proceeds receipt in the name of ATC. This closing balance of 14030/- is carried forward to the next date. Both the figures of brought forward cash balance of 15565/- and carry forward balance amount of 14030/- are verifiable from the pending and the next page of the seized documents at PB 152 and PB 154. ” “5. Seized records on the basis of which additional income was offered by the assessee are voluminous which are inventorized as LPS 14 to LPS 21. The same are on record in the paper books filed. For the purpose of computing additional income offered in the returns, the assessee had

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 27 of 72

analyzed and split the transactions and entries recorded on the seized papers on the basis of dates mentioned on these seized papers. The assessee had offered additional income (after telescoping benefits) on the basis of seized papers in the returns which included income towards – (i) Peak investment (ii) Profit element (iii) Other miscellaneous discrepancies.” “6.1 Assessing Officer resorted to higher of the two figures viz. higher of Total Receipts and Total Payments in each assessment year to make the additions as either unexplained receipts or unexplained payments. As tabled in para 12.3 of his order, additions were made by Assessing Officer of the higher figure as aforesaid after reducing income already offered by the assessee.”

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 28 of 72

that the assessee has offered additional income after

telescoping benefits on the basis of seized papers in the

returns, which included income towards peak investment,

profit element and other misc. discrepancies, whereas the AO

has considered higher of the two figures viz. higher of total

receipts and total payments in each assessment year to make

the addition as either unexplained receipts or unexplained

payments as tabled in para 12.3 of assessment order. The ld.

CIT(A) observed that she did not find any force in the approach

of the AO for adding the entire receipts side or payment side of

the seized papers by taking the higher of the two figures. Since

recording of these unaccounted transaction is on day to day

basis, containing date wise entries for payments of various

expenses recorded against entries for receipts, with brought

down and carry forward cash balance from the preceding day

to the next day and each day balance recorded on seized

papers matching. The CIT(A) has held that there is no

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 29 of 72

justification and merit for the AO to add the entire receipts

side or the entire payment side of the seized papers by taking

the higher figure out of the two for each assessment year. The

ld. CIT(A) further noted that the assessee has offered net profit

element in the returns by applying the net profit ratio as per

the audited accounts on the total receipts for the respective

years, but according to the CIT(A), there is no justification in

application of net profit ratio as per audited accounts on the

unaccounted total receipts as the expenses like salary,

insurance, telephone, electricity, office, various taxes, audit

fee, bank charges, legal and license fee, interest and

depreciation would not form part of the payment of expenses

incurred in the unaccounted business of trading in onion and

garlic. When these expenses are excluded from the audited

profit and loss account for each of the assessment year, this

adjusted net profit ratio indicates profit which the assessee

could have earned on the unaccounted transaction recorded in

the seized papers. Therefore, the CIT(A) concluded that the

real motivation for the assessee to undertake such

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 30 of 72

unaccounted transaction would be to earn profits at this

adjusted rates of net profit ratio. Accordingly, the ld. CIT(A)

has worked out the adjusted net profit ratio after considering

the adjustment of audited and profit and loss account as nil,

as per the findings which have been reproduced hereunder :-

“7.2 To arrive at the adjusted NP Ratio, audited Profit & Loss

account figures for all the five assessment years are

consolidated and adjusted for the receipts and expenses

which would not form part of the unaccounted business. The

various items which have been considered for adjustment

from the audited P&L been marked as Nil in the table below.

The details are tabulated as under for ready reference -

Particulars AY 2012-13 AY 2011-12 AY 2010-11 AY 2009-10 AY 2008-09

Sales Turnover 239,997,166 307,639,672 188,291,006 92,017,994 169,394,598 Closing Stock 4,628,604 29,257,913 14,098,289 8,430,840 1,006,266 Total 244,625,770 336,897,585 202,389,295 100,448,834 170,400,864

Opening Stock 29,257,913 14,098,289 8,430,840 1,006,266 3,022,609 193,853,283 302,444,275 177,486,500 84,875,813 156,479,895 Purchases Gross Profit 21,514,574 20,355,020 16,471,955 14,566,755 10,898,360

G P Ratio 8.96% 6.62% 8.75% 15.83% 6.43%

Gross Profit 21,514,574 20,355,020 16,471,955 14,566,755 10,898,360 Other Income: - Interest Nil Nil Nil Nil Nil Received - Discount & Nil Nil Nil Nil Nil Claim received

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 31 of 72

Total of Credit 21,514,574 20,355,020 16,471,955 14,566,755 10,898,360 side of P & L a/c

5,477,229 6,794,953 4,174,072 4,412,056 1,829,294 Freight Warehouse & 550,198 474,265 310,245 318,343 205,404 cold storage charges, rent, etc. 3,731,721 2,508,763 2,302,546 2,128,225 1,417,146 Harnrnali, Labour & , Grading Charges Salary Nil Nil Nil Nil Nil Insurance Nil Nil Nil Nil Nil Commission & 1,403,594 1,140,299 1,305,923 587,706 1,320,472 Brokerage Travelling 14,204 100,012 12,900 57,068 53,215 expenses Telephone Nil Nil Nil Nil Nil expenses Other Taxes Nil Nil Nil Nil Nil (rnandi, profession, . entry, etc) Audit fees Nil Nil Nil Nil Nil , Bank Charges Nil Nil Nil Nil Nil Discount 803,991 167,470 473,250 235,193 24,049 Electricity Nil Nil Nil Nil Nil Job work 325,400 81,280 205,025 127,630 Legal fees Nil Nil Nil Nil Nil Mandi Licence Nil Nil Nil Nil Nil & Other Licence Office expenses Nil Nil Nil Nil Nil Packing - 1,257,704 1,471,373 1,997,765 889,795 Expenses (Bardan etc) 8,900 6,578 7,723 1,989 3,119 Postage Stationery 11,725 14,973 12,999 20,229 49,887 113,608 115,936 79,415 109,386 106,876 Vehicle running and maintenance 113,458 59,776 85,659 115,658 50,345 Tulai (weighing) expenses Interest to Nil Nil Nil Nil Nil Bank Interest to Nil Nil Nil Nil Nil

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 32 of 72

Others Interest on late Nil Nil Nil Nil Nil TDS, VAT, CST, Mandi tax Depreciation Nil Nil Nil Nil Nil Total 12,554,028 12,640,728 10,317,385 10,188,642 6,077,232

Expenses

8,960,546 7,714,292 6,154,570 4,378,113 4,821,128 Adjusted Net Profit

Adjusted N P 3.73% 2.51% 3.27% 4.76% 2.85% Ratio

7.3 From the above table it is seen that Assessment

Year 2009-10 has the highest NP Ratio of 4.76%

and Assessment Year 2011-12 has the lowest at

2.51 %. The average NP Ratio for all the five years

comes to 3.42 %. Considering the facts and

detailed workings tabulated above, I hold that

highest of the adjusted NP Ratio which comes to

4.76% out of the five assessment years under

consideration, rounded to 5.00% be applied on the

total receipts for each of the assessment years.

Accordingly, adjusted NP Ratio @ 5.00% is applied

on the Total Receipts of each of the assessment

years from AYs 2008-09 to 2012-13. Credit is

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 33 of 72

given for the income already offered by the assessee in the respective returns for these assessment years. ”

also noted that the additional income by the assessee for

assessment year 2008-09 included towards peak investment

required for making this unaccounted transactions at Rs. 6

lakhs for assessment year 2007-08 and Rs. 59,38,000/- and

Rs. 7,32,000/- for assessment year 2008-09 for which the

assessee has claimed credit in the subsequent years on the

premises that the said undisclosed income of the assessee had

borne incidence of tax and, therefore, would constitute his

funds even though concealed, from which he may draw

subsequently for meeting expenditure or introducing amounts

in his books of accounts. The ld. CIT(A) after considering the

daily cash balance, highest figure was taken as peak

investment for the purpose of making addition towards

unexplained expenditure, based on credit balance recorded in

seized papers worked out peak credit as under :-

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Particulars A.Y.2008-09 A.Y.2009-10 A.Y.2010-11 A.Y. 2011-12 A.Y.2012-13 Date of peak 19.10.2007 01.04.2008 29.09.2009 30.11.2010 20.07.2011 credit for each year Peak credit 6,61,708 1,56,490 2,24,012 72,40,388 71,53,418 during the year on the date mentioned above

8.3 From the table above, it is evidently clear

that for the assessment year 2008-09, the initial

peak credit of Rs. 6,661,708/- is to be added

as unexplained expenditure after allowing credit

of Rs. 6,61,708/- for assessment year 2008-09.

also has given credit for the additional income

already offered by the assessee while making

additions to the total income. The claim of

assessee for credit in subsequent years of

additional income offered in preceding years is

accepted as it has been claimed by the

assessee and also allowed by the Assessing

Officer on the premise that the said undisclosed

income of the assessee had borne the incidence

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of tax and therefore, would constitute his fund, even though concealed, from which he may draw subsequently for meeting expenditure or introducing amounts in his books of accounts. Reliance is placed on the decision of jurisdictional High Court of Madhya Pradesh in the case of Dharamdas Agarwal [1983] 144 ITR 143 (MP) where in following the decision of Hon'ble Supreme Court it has been held as under:-

"In Anantharam Veerasinghaiah & Co. v. CIT [1980J 123 ITR 457(SC), it was held that secret profits or undisclosed income of an assessee earned in an earlier assessment year may constitute a fund, even though concealed, from which the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books. In the instant case, the Tribunal had pointed out

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 36 of 72

that the additions made in previous years represented income from business outside the account books which the assessee was carrying on in the name of some benamidar as also income from undisclosed sources. The assessee had also made an application to the ITO wherein he had confessed to having done so and had expressed his willingness to be assessed therefor in his own hands. The Tribunal had, in the circumstances, come to the conclusion that the impugned cash credits came out of income earned in the earlier years which had already borne tax. The finding so reached by the Tribunal was a finding of fact and could not be interfered with. Accordingly, the Tribunal was Justified.” 11. The ld. CIT(A) noted that the assessee himself has offered

Rs. 6 lakhs in 2007-08 and Rs. 7,32,000/-in assessment year

2008-09 in the 153A returns towards other discrepancies

noticed of post search. The credit for this amount was

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 37 of 72

considered for set off towards the undisclosed income being

calculated on the basis of Net profit element and the peak

investment. Considering these facts, the ld. CIT(A) has made

the computation of addition for each assessment year under

appeal towards net profit element on the total receipts as

undisclosed income and peak credit as unexplained

expenditure as tabulated as per para 10 of her order, which is

as under :-

Particulars Line Item AY 2008- AY 2009-10 AY 2010- AY 2011- AY 2012- No. 09 11 12 13 Total of Receipts from 6,47,49,380 70,000 81,97,821 3,51,69,030 2,93,55,236 A seized documents

Date of peak credit for 19.10.2007 01.04.2008 29.09.2009 30.11.2010 20.07.2011 B each year Peak credit during the 6,61,708 1,56,490 2,24,012 72,40,388 71,53,418 C year on the date mentioned above Less: Initial payments D 1,39,787 - - - - recorded on the seized documents without any cash in hand or receipts (5th & 6th June 2007) 6,61,708 Less: Peak credit for E - - - - preceding years already considered for addition ,.. - Addition for Peak Credit F = C-D-E 5,21,921 - 65,78,680 - - - Addition for Initial D 1,39,787 - - payments recorded on the seized documents without any cash balance in hand or cash receipts (5th & 6th June 2007) G=5% of Addition for Profit 32,37,469 3,500 4,09,891 17,58,452 14,67,762 A element on Total Receipts per adjusted NP Ratio @ 5% discussed above

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38,99,177 3,500 4,09,891 83,37,132 14,67,762 Total Additions H= F+D+G

Income already offered in I 68,22,000 500 21,000 1,25,000 2,25,000 the relevant year under consideration Income already offered in J 6,00,000 35,22,823 35,19,823 31,30,932 50,81,200 the preceding year / available as credit from preceding year Total of above K = I + J 74,22,000 35,23,323 35,40,823 32,55,932 53,06,200

Credit balance of income L=K-H 35,22,823 35,19,823 31,30,932 (50,81,200) 38,38,438 offered available for set off in subsequent years

50,81,200 Addition sustained / M - - - - added in appeal

elaborately, the conclusion arrived at in respect of above table

at para 12.1 to 17.2, which read as under :-

13.

“12.1 The regular income disclosed in the return

is Rs. 2,98,230. In the return filed u/s 153A

additional income of Rs. 59,38,000/- has been

offered on account of initial peak investment, Rs.

7,32,000/ - on account of discrepancies noticed

post search and Rs. 1,52,000/- for profit

element based on NP ratio. Thus total income

offered in the return ix] s 153A is Rs. 71,20,230.

12.2 The total receipts for the year is Rs.

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6,47,49,380 on which assessee has offered net profit of Rs. 1,52,000 considering NP Ratio of 0.24% as per the audited P&L for A.Y. 2008-09. Since these receipts are not recorded in the regular books of account, a higher percentage of adjusted net profit ratio of 5% for all the five assessment years is considered for the reasons discussed in detail above. Thus, by applying adjusted NP ratio of 5.00% on the total receipts of Rs. 6,47,49,380, the net profit comes to Rs. 32,37,469. The assessee had offered Rs. 1,52,000 towards net profit in the return for which credit is given and the balance is considered for addition.

12.3 On perusal of seized records relevant to AY 2008-09, it is seen that payment entries have been recorded for the dates mentioned as 05/06/2007 and 06/06/2007, totaling to Rs. 1,39,787. On the same pages, there are no

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 40 of 72

entries recorded for balance of cash available or of any receipts for these two dates. Accordingly, payments of Rs. 1,39,787 made on these two dates as the initial payments without the availability of cash receipts are considered for addition as unexplained expenditure.

12.4 Further, for the relevant assessment year, on 19/10/2007, the amount of peak credit is Rs. 6,61,708 which is considered for addition as unexplained expenditure. Out of this peak credit, Rs. 1,39,787 is already considered for addition towards initial payments without the availability of cash. Accordingly, the balance of Rs. 5,21,921 (6,61,708-1,39,787) is considered for addition towards peak credit as unexplained expenditure.

12.5 In the assessment year 2007-08, assessee

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has offered Rs. 6,00,000 in the return is] s 153A on account of discrepancies noticed post search. The total additional income offered -by the assessee in the returns filed u/s 153A for AY 2007-08 and 2008-09 is Rs. 74,22,000 (6,00,000+59,38,000+1,52,000+7,32,000) which constitutes his fund available with him, from which the assessee may draw subsequently for meeting the expenditure or introducing amounts in his account books. Accordingly, set off of Rs. 38,99,177 (1,39,787 + 5,21,921 + 32,37,469) is given out of the income of Rs. 74,22,000 already offered by the assessee resulting in Rs. 35,22,823 (74,22,000- 38,99,177) as credit balance available to the assessee for set off in the subsequent years. 12.6 Though income of Rs. 38,99,177 is sustained on account of entries in the seized documents LPS-14 to LPS-21 nothing gets

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 42 of 72

added to the total returned income after giving credit from the additional income already offered by and available to the assessee. 12.7 In summary, for the assessment year 2008-09, the following amounts are considered for additions to the total income of the assessee – Initial payments on Rs. 1,39,787 05/06/2007 & 06/06/2007 as unexplained expenditure Peak credit on 19.10.2007 Rs. 5,21,921 after considering initial payments as above Net profit @ 5.00% Rs.32,37,469 Total Rs. 38,99,177 Less: Credit from income Rs. 38,99,177 already offered Addition sustained Nil Addition made by the AO Rs. 5,88,15,870 Addition sustained Nil Relief given to the assessee Rs. 5,88,15,870

12.8 Ground Nos. 2 (a) to 2 (f) are therefore allowed. 13. Assessment Year 2009-10 13.1 The income disclosed in the regular return

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of income is Rs. 3,92,190. Additional income of Rs. 500 is offered in the return filed u/ s 153A on account of profit element based on NP ratio. Thus the total income offered in the return u/s 153A is Rs. 3,92,690.

13.2 The assessee has offered profit element of Rs. 500 on total receipts of Rs. 70,000 by adopting the NP ratio. of 0.48% taken from the Tax Audit. Report for the year. As discussed above, by considering the adjusted N, Ratio @ 5% on total receipts of Rs. 70,000, the net profit comes to Rs. 3,500. The assessee had offered Rs. 500 towards net profit in the return for which credit is given and the balance is considered for addition.

13.3 For the relevant assessment year, on 01/04/2008, the amount of peak credit is Rs.1,56,490 which gets covered by the peak credit of Rs. 6,61,708 considered in the

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preceding assessment year. Accordingly, no addition is made on account of peak credit in AY 2009-10.

13.4 The assessee already has a credit balance of Rs. 35,22,823 from AY 2008-09 available for set off. For the 'impugned Assessment Year 2009-10, the addition of Rs. 3,500 is considered towards undisclosed income on account of net profit. Accordingly, total of Rs.35,19,823 (35,22,823 + 500 - 3,500) becomes available with the assessee as his funds from which he may draw subsequently for meeting expenditure or introducing amounts in his account books in subsequent years.

13.5 Though, income of Rs. 3,500 is sustained for the purpose of addition, nothing gets added to the total returned income after giving credit

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 45 of 72

from the additional income already offered by and available to the assessee.

13.6 In summary, for the assessment year 2009-10, as stated above, following amount is considered for addition to the total income of the assessee – Net profit @5.00 % Rs. 3,500 Less: Credit from income Rs. 3,500 already offered Addition sustained Nil Addition made by the AO Rs. 69,500 Addition sustained Nil Relief given to the assessee Rs. 69,500 13.7 Ground Nos. 2 (a) to 2 (f) are therefore allowed. 14. Assessment Year 2010-11 14.1 The income disclosed in the regular return of income filed is Rs. 4,60,850. Additional income of Rs. 21,000/- is offered on account of

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 46 of 72

profit element based on NP ratio in the return filed u/s 153A. Thus total income offered in the return u/s 153A is Rs. 4,81,850. 14.2 Total receipts for the year are Rs. 81,97,821 on which the assessee has offered net profit of Rs. 21,000 considering NP Ratio of 0.25% as per the audited P&L account for the year. As discussed above, considering the adjusted NP Ratio @ 5% on total receipts of Rs. 81,97,821, the net profit comes to Rs. 4,09,891. The assessee has already offered Rs. 21,000 towards net profit in the return for which credit is given and the balance is considered for addition. 14.3 For the relevant assessment year, on 29/09/2009, the amount of peak credit is Rs. 2,24,012 which gets covered by the peak credit of Rs. 6,61,708 considered in the preceding A.Y. 2008-09. Accordingly, no addition is made on

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 47 of 72

account of peak credit in A.Y. 2010-1l.

14.4 For the impugned Assessment Year 2010- 11, the addition of Rs. 4,09,891 is considered towards undisclosed income on account of net profit which also becomes available to the assessee in the subsequent years. Accordingly, total of Rs. 31,30,932 (35,19,823 + 21,000 - 4,09,891) is available with the assessee as his funds from which he may draw subsequently for meeting expenditure or introducing amounts in his account books in subsequent years.

14.5 Though, income of Rs. 4,09,891 is sustained for the purpose of addition, nothing gets added to the total returned income after giving credit from the additional income already offered by and available to the assessee.

14.6 In summary, for assessment year 2010-11 following amount IS considered for addition to

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the total income of the assessee –

Net profit @ 5.00 % Rs. 4,09,891 Less: Credit from income Rs. 4,09,891 already offered Addition sustained Nil Addition made by the AO Rs. 81,76,821 Addition sustained Nil Relief given to the assessee Rs. 81,76,8921

14.7 Ground Nos. 2 (a) to 2 (f) are therefore allowed. 15. Assessment Year 2011-12 15.1 The income disclosed in the regular return of income is Rs. 9,90,210. Additional income of Rs. 1,25,000/- is offered on account of profit element based on NP ratio in the return filed u/s 153A. Thus total income offered in the return u/s 153A is Rs. 11,15,210. 15.2 Total receipts for the year are Rs. 3,51,69,030 on which assessee has offered net

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profit of Rs. 1,25,000 considering the NP Ratio of 0.35% as per the audited P&L account for the year. As discussed above, considering the adjusted NP Ratio @ 5% on total receipts of Rs. 3,51,69,030, the net profit comes to Rs. 17,58,452. The assessee has offered Rs. 1,25,000 towards net profit in the return for which credit is given and the balance is considered for addition.

15.3 For the relevant assessment year, on 30/11/2010, the amount of peak credit is Rs. 72,40,388 which is considered for addition. However, in AY 2008-09, the amount of Rs. 6,61,708 has already been considered towards peak credit addition. Accordingly, credit is given for Rs. 6,61,708 and balance of Rs. 65,78,680 (72,40,388-6,61,708) is sustained as addition for peak credit in AY 2011-12 as unexplained expenditure.

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15.4 For the impugned Assessment Year 2011- 12, the addition of Rs. 17,58,452 is considered towards undisclosed income on account of net profit and Rs. 65,78,680 towards peak credit as unexplained expenditure, totalling to Rs. 83,37,132. 15.5 The assessee already has a balance of Rs. 31,30,932 brought forward from AY 2010-11 and Rs. 1,25,000 has been offered in the current year in the return xx] s 153A towards profit element. Accordingly, after giving credit of Rs. 32,55,932 (31,30,932+1,25,000), the balance of Rs. 50,81,200 (83,37,132-32,55,932) is considered for addition in A.Y. 2011-12.

15.6 In summary, for the assessment year 2011-12 following amounts are considered for addition to the total income of the assessee-

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 51 of 72

Net profit @5.00 % Rs. 17,58,452 Peak credit on 30.11.2010 Rs. 65,78,680 considering credit already offered Total Rs. 83,37,132 Less: Net profit already offered Rs. 1,25,000 by the assessee in return Less: Funds available as Rs. 31,30,932 discussed in Para 14.4 Addition sustained Rs. 50,81,200

Addition made by the AO Rs. 4,48,68,759 Addition sustained Rs. 50,81,200 Relief given to the assessee Rs. 3,97,87,559

15.7 Ground Nos. 2 (a) to 2 (1) are therefore partly

allowed.

16.1 The income disclosed in the regular return

of income is Rs. 8,05,920. Additional income

offered in the regular return of income is Rs.

2,25,000. Thus total income offered in the return

is Rs. 10,30,920.

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16.2 The total receipts for the year are Rs. 2,93,55,236. As discussed above, considering the adjusted NP Ratio @ 5% on total receipts of Rs. 2,93,55,236, the net profit comes to Rs. 14,67,762. The assessee has offered Rs. 2,25,000 as additional income in the return for which credit is given and the balance is considered for addition. 16.3 For the relevant assessment year, on 20/07/2011, the amount of peak credit is Rs. 71,53,418 which gets covered by the peak credit of Rs. 72,40,388 considered in the preceding A.Y. 2011-12. Accordingly, no addition is made on account of peak credit in AY 2012-13.

16.4 In A.Y. 2011-12, addition of Rs. 50,81,200 has been sustained as addition and Rs. 2,25,000 has already been offered in the current year towards as additional income, totaling to Rs. 53,06,200 which constitutes the fund

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available, from which the assessee may draw for meeting expenditure or introducing amounts in. his account books.

16.5 Though, income of Rs. 14,67,762 is sustained for the purpose of addition. Nothing gets added to the total returned income after giving credit from the amount of Rs. 53,06,200 as discussed above. 16.6 In summary, for the assessment year 2012-13 following amounts are considered for additions to the total income of the assessee. 16.7 Ground Nos. 2 (a) to 2 (f) are therefore allowed. 17. The Assessing Officer has also stated that expenses are liable to be added u] s 69C as the source of expenditure could not be explained by the assessee and hence the purchases are 'unexplained expenditure' and clearly hit by provisions of section 69C. I do not find any merit

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and justification in the stand taken by the Assessing Officer since it is evident from the descriptive narratives dealt above for certain representative seized loose papers that cash balance for each day is carried forward to the next date and is available for payment transactions. The process of carry forward of cash is continuous and on day-to-day basis. 17.1 Accordingly, balance of cash from the preceding day and the cash received during the day were available as source for meeting the payments each day. Thus the source of expenditure incurred is available on the same page of the seized paper where the said expenditures/payments are recorded. 17.2 Also, the Assessing Officer has arrived at the amount of addition by taking higher of the Total Receipts and Total Payments. Where the 'Total Payments' have been considered for

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making addition as Unexplained Expenditure by the Assessing Officer, their source is self- explained from the 'Total Receipts' which the Assessing Officer did not consider. Accordingly, the ground no. 2(g) taken by the assessee on application of Section 69C is allowed in favour of the assessee for assessment years 2008-09 to 2012-13.” 14. Aggrieved with the findings of the ld. CIT(A), the Revenue

as well as assessee has filed these appeals. 15. Before the Tribunal, the grievance of the Revenue is that

the ld. CIT(A) erred in deleting the additions made by the AO

on account of unrecorded and unexplained transactions

appeared in LPS-14 to LPS 21without appreciating the facts

whereas the grievance of the assessee is that the ld. CIT(A) is

not justified in considering the net profit ratio which comes to

4.76 % and rounding the same to 5% at uniform rate on total

receipts for each of the assessment year from assessment year

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2008-09 to 2012-13 resulting into addition towards net profit

element for the impugned years.

submitted that the ld. CIT(A) is not justified in deleting the

addition which has been made on the basis of seized loose

papers as per LPS-14 to LPS-21. The ld. CIT DR further

submitted that the assessee’s father Shri Shiv Kumar Hotwani

has made a surrender of Rs. 3 crores on behalf of the assessee

u/s 132(4) in his statement recorded on 20.1.2012, which was

not reflected in the returns of income filed. Therefore, it was

urged that the retraction from the surrender during search

should not have been allowed by the ld. CIT(A). The ld. CIT DR

has also cited number of case laws in support of his

proposition on the point of retraction of surrender by the

assessee. The ld. CIT DR also submitted that since the

addition of Rs. 14 crores was made on the basis of seized

material. Therefore, the AO did not make separate addition on

account of surrender of Rs. 3 crores made during the course of

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 57 of 72

search. The ld. CIT(A) has also cited some decisions in support

of his view.

submitted that a detailed and exhaustive submission was

made before the AO vide letter dated 23.12.2013 and replies to

specific queries were submitted. During the course of

assessment proceedings in para 12, the AO noted vital fact

which goes to the root of the matter. In fact, the LPS-14 to LPS

21 are writing pads containing various details of sales and

purchases of Garlic and Onion. On the basis of entries

recorded of unaccounted transactions in the loose papers, the

assessee has offered additional income after telescoping

benefits in the returns of income, which were, inter alia,

included peak investment arising from impugned loose papers,

profit element and other misc. discrepancies noticed. For

arriving at profit element, the net profit ratio as per tax audit

report for the respective years were used since the assessee

dealt in the same agricultural commodity i.e. Garlic and Onion

for both accounted transaction dealt in audited accounts and

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 58 of 72

those not accounted dealt in seized papers. However, the AO

proceeded solely on the basis of details furnished by the

assessee to make addition of ‘higher figure out of the

unrecorded receipts or unexplained payments. The Ld.

Counsel for the assessee contended that the highest of the

adjusted net profit ratio of 4.76 % rounded to 5% and not

considering the net profit ratio as per audited profit and loss

account not correct when the assessee is trading in

agricultural products and same is only source of income of the

assessee. The ld. CIT(A) after calling the remand report from

the AO and perusing the voluminous seized material as well as

submissions made before the AO, computed the adjusted NP

ratio by taking a view that certain expenses are not incurred in

the conduct of business transactions which are not accounted

in regular books of account, whereas the assessee has offered

net profit element in the returns by applying net profit ratio as

per audited accounts in the total receipts for the respective

years. The ld. Authorized Representative of the assessee

submitted that highest percentage came out in the assessment

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 59 of 72

year 2009-10, whereas the average net profit ratio for all the

five years was also computed by the Ld. CIT(A) which is stated

to be 3.42%. Therefore, the ld. Authorized Representative of

the assessee contended that the application of 5 % net profit

ratio is not correct, particularly when the assessee is following

regular trading business of same agricultural products, which

is reflected in the audited profit and loss account for each of

the assessment year. Therefore, it was urged that the net

profit ratio applied by the assessee on the basis of audited

accounts for each year should be accepted. In support of his

proposition, the ld. Authorized Representative of the assessee

has also placed reliance in the case of Dharambir Hansraj

Agarwal [1987] 23 ITD 589 (BOM.) and P.D. Abraham [2014]

48 taxmann.com 352 (Kerala). Without prejudice to the above,

the Ld. Counsel for the assessee further submitted that as an

alternate, the adjusted net profit Ratio which has been worked

out by the Ld. CIT(A) for each of the assessment year may be

retained and applied for that respective year instead of

applying a uniform rate of 5% for all the five years. Since each

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 60 of 72

year is an independent year and ought to be considered

separately, the adjusted net profit ratio for that particular year

may be retained and applied for that year. The Ld. CIT(A) has

worked out the adjusted NP Ratio for each of the impugned

year and the same ought to have been applied for the

respective year instead of taking the highest net profit ratio

and applying it uniformly to all the years. The Ld. Authorized

Representative of the assessee also relied on the decision of

Hon’ble Gujarat High Court in the case of Tirupati

Construction Company, [2015] 55 taxmann.com 308 has

upheld the decision of Hon’ble ITAT Ahmedabad Bench in the

case of Tirupati Construction Company IT(SS) 73 to

75/Ahd/2010 order dated 13.11.2013, wherein it was held

that “the only peak of debit and credit entries of the seized

papers/diary could be assessed as undisclosed income in the

hands of the assessee, and there was no justification for

adding the entire receipt side of the seized papers and,

accordingly, there is no merit in the grounds of the appeal of

the Revenue with regard to this issue and ,accordingly,

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 61 of 72

dismissed.” The Ld. Authorized Representative of the assessee

further cited decision in the case of Nem Chand Daga [2005] 1

SOT 515 (Delhi Trib.), wherein it was held that “whether when

a material seized has to be relied upon, entire content

appearing on it should be considered and department cannot

ignore some of entries which do not suit it and accept other”.

Further, reliance was also placed in the case of Ishwardass

Mutha [2004] 141 Taxman 555 (Raj), “where the Assessing

Officer made an addition to income of assessee on account of

unexplained investment in money lending business - Said

addition was made by Assessing Officer by taking into account

debit side only - On appeal, Tribunal reduced amount of

addition sustaining only to extent of peak credit only -

Whether, in view of above facts, no referable question arose

from order of Tribunal for consideration - Held, yes.”

perused the material available on record. We find that Shri

Shiv Kumar Hotwani, father of the assessee had made a

disclosure of Rs. 14 crores u/s 132(4) of the Act on behalf of

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 62 of 72

his family and group, which, inter alia, included disclosure of

Rs. 3 crores on behalf of the assessee, Sheri Shiv Kumar

Hotwani and M/s. Sambodhi Foods and Dehydrates.

However, while filing the return in response to Section 153A,

the assessee has offered undisclosed income of Rs.

77,93,500/-, thereby retracting the balance surrender of Rs.

2,22,06,500/-. This undisclosed income of Rs. 77,93,500/-

shown in the return of income by the assessee was on the

basis of unrecorded transaction reflected in the seized loose

papers LPS-14 to LPS-21. On perusal of the assessment order,

we find that the AO has discussed in the assessment order

that retraction is not acceptable, but no addition on account of

surrender made u/s 132(4) of the Act was made. We find that

the AO proceeded to make addition on the basis of seized loose

papers LPS-14 to LPS-21. The AO considered the higher figure

either of the total receipts or total expenses/payments and,

accordingly, made addition of Rs. 14,14,97,877/- for all the

assessment years under appeal as undisclosed income of the

assessee, without allowing the carried forward balances, set off

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 63 of 72

of peak. The perusal of para 12 of the assessment order shows

that as per findings of the AO LPS-14 to LPS-21 are writing

pads containing various details of sale and purchase of garlic

and onion and expenses. We find that the ld. CIT(A) has given

a finding regarding disclosure u/s 132(4) in para 18.3 of the

appellate order, wherein she has observed that disclosure

made by Shri Shiv Kumar Hotwani, father of the assessee has

not been linked to any incriminating documents or head of

income. She further observed that after search Shri Roop

Chand Hotwani, Shri Arjun Das Hotwani and Shri Shiv Kumar

Hotwani on behalf of their family made various requests by

letters dated 27.01.2012, 25.07.2012, 06.08.2012,

08.08.2012, 24.01.2013 and 29.08.2013 to provide the details

of incriminating documents. Therefore, the observation of the

AO that at no point of time prior to 10.12.2013, Shri Shiv

Kumar or any family members disputed the genuineness of

the disclosure, is incorrect. We also find that disclosure was

not made by the assessee hence it is not binding on him. We

also rely on the decision in the case of CIT vs. Chandra Kumar

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 64 of 72

Jethmal Kochar, 230 Taxman 78 (Guj), Kunwarjeet Finance

Limited, (2015) 61 Taxmann.com 52 (Ahm.Tri), Jagdish

Narayan Ratan Kumar, (2015) 61 taxmann.com 173 (Raj),

wherein it was held that when addition of disclosure made by

the assessee in statement recorded u/s 132(4), it cannot be

sustained despite retraction, when Revenue could not furnish

any positive evidence in support of such addition. Therefore,

we are unable to uphold the findings of the AO and inclined to

agree with ld. CIT(A). Further, the Hon'ble Rajasthan High

Court in the case of Jagdish Narayan Ratan Kumar (supra)

has held that statement made during search must be

correlated with records, which are found and if there is no

ambiguity, explanation given by the assessee should be taken

into consideration before making assessment. Thus, based on

these decisions, we are of the opinion that the addition made

by merely based on statement u/s 132(4) without linking to

the seized books of accounts, other documents, money,

bullion, jewellery, other valuable articles or things is not

sustainable in law. We also find that the ld. CIT(A) has held

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 65 of 72

that the assessee has surrendered Rs. 75,68,500/- + Rs.

2,25,000/- as an additional income and further addition of Rs.

50,81,200/- is confirmed, hence, further addition is made on

the basis of disclosure. From these findings of the AO as well

as CIT(A), we find that the ld. CIT(A) has also sustained the

addition based on the seized material. We further find that the

Revenue has not taken any specific ground on the findings

given by the ld. CIT(A) on retraction of disclosure nor the AO

has made any addition on account of disclosure/surrender

made by Shri Shiv Kumar, father of the assessee on behalf of

the assessee. Therefore, the contention of the ld. CIT DR that

the ld. CIT(A) should have accepted the disclosure made u/s

132(4) is not acceptable, particularly, when there is no specific

ground taken by the AO before the Tribunal nor the AO made

any addition based on disclosure of the assessee. Now, we

turn to the deletion of addition made on the seized papers

LPS-14 to LPS-21. We find from the findings of the AO as well

as ld. CIT(A) that loose papers LPS-14 to LPS-21 are the

writing pads on which transaction relating to sale/purchase

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 66 of 72

(trading business) of garlic and onion of the assessee is

recorded. We find that the assessee has worked out total

receipts and total payments of each assessment year to offer

additional income in returns filed u/s 153A. which has not

been disputed by the AO. However, the AO did not consider

the credits brought down and carried forward cash balances,

peak theory and cash balance brought down and merely

proceeded to make addition of higher of the total receipts or

payments of each assessment year. We find that the ld. CIT(A)

has elaborately analyzed the seized loose papers of each

assessment year as reproduced above in this order. She also

worked out adjusted net profit rate by excluding certain

expenses from the audited accounts in the chart given by her

in the finding as reproduced above and applied net profit rate

@ 4.76 % rounding to 5% uniformally for assessment years on

higher of the amount of unrecorded total receipts/payments

seized and after allowing peak, set off of carried forward cash

balances brought forward and sustained the total addition of

around Rs. 50,81,200/-, besides, additional income of Rs.

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 67 of 72

77.93 lakhs offered by the assessee in his return of income

u/s 153A of the Act. We find that this approach of the ld.

CIT(A) has been as per the norms of accounting principle.

Therefore, the approach of the AO for allowing set off and peak

of the expenses, is justified. Therefore, the AO was not justified

in making the addition of the entire receipts/payments

whichever is higher without allowing peak and set-off.. We are

of the considered opinion that when entire entries of seized

documents are to be considered, it cannot be taken in part or

peace-meal and whole document should be considered as a

whole. We find that the seized material, documents were found

during the course of search, therefore, the entries recorded

thereon whether it is a receipt or expenditure, has to be

accepted as genuine. Therefore, for taxing, the real income is

required to be taxed and not the receipts when document

contains receipts and expenditure. Therefore, we are of the

considered view that the peak of the debit and credit entries of

the seized documents is to be considered and set off of carried

forward, disclosure or income being taxed either being

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 68 of 72

accounted or unaccounted income is to be allowed. Therefore,

to this extent, we find that the findings given by the ld. CIT(A)

is justified. We find support from the decision of the Hon'ble

High Court of Gujarat in the case of Tirupati Construction,

(2015) 55 Taxmann.com 308 (Guj), relied upon by the ld.

Authorized Representative of the assessee, wherein it was held

that only peak of debit and credit entries of the seized

papers/diaries could be assessed in the hands of the assessee

and there was no justification for adding the entire receipts

side of the seized papers and, accordingly, there is no merit in

the grounds of appeal of the Revenue with regard to this issue

and, accordingly, dismissed. In the light of these facts, all the

grounds of the Revenue are treated as dismissed for all the

assessment years under appeal.

CIT(A) has applied uniform net profit rate of 5% for all the

assessment years under appeal, which, in our view, is not

correct approach as each assessment year is a separate

assessment year and net profit rate of the same can be varied

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 69 of 72

for assessment year to assessment year. We also find that ld.

CIT(A) has worked out adjusted N.P. rate by excluding audited

accounts, at 2.85%, 4.76%, 3.27%, 2.51% and 3.73% for

assessment years 2008-09, 2009-10, 2010-11, 2011-12 and

2012-13, respectively. We find from the alternative submission

from the ld. Authorized Representative of the assessee that

adjusted net profit rate for each assessment year should be

adopted. We note that net profit ratio @ 5% for adjusted profit

and loss account for each of the assessment year cannot be

applied while considering net profit rate of on unaccounted

sales and expenses resulting into unaccounted transaction.

Therefore, the net profit rate for the relevant assessment years

under appeal as worked out by the ld. CIT(A) after analyzing

transaction from each year would be most appropriate to apply

for working out net profit on account of unaccounted sales for

the respective assessment years. Therefore, we are of the

considered opinion that adjusted net profit rate pertaining to

concerned assessment years as worked out by the ld. CIT(A)

for each assessment year under appeal would be reasonable to

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 70 of 72

apply while calculating unrecorded profit. Accordingly, the

sustainable addition would be worked out after allowing the

peak, set off of brought forward balances as allowed by the ld.

CIT(A). In view of that matter, we direct the AO to apply the

adjusted net profit ratio as computed as under :-

Particulars Line Item AY 2008- AY 2009-10 AY 2010- AY 2011- AY 2012- No. 09 11 12 13 Total of Receipts from 6,47,49,380 70,000 81,97,821 3,51,69,030 2,93,55,236 A seized documents

Date of peak credit for B 19.10.2007 01.04.2008 29.09.2009 30.11.2010 20.07.2011 each year Peak credit during the 6,61,708 1,56,490 2,24,012 72,40,388 71,53,418 C year on the date mentioned above Less: Initial payments D 1,39,787 - - - - recorded on the seized documents without any cash in hand or receipts (5th & 6th June 2007) Less: Peak credit for E - - - 6,61,708 - preceding years already considered for addition ,.. - - Addition for Peak Credit F = C-D-E 5,21,921 - 65,78,680 Addition for Initial D 1,39,787 - - - - payments recorded on the seized documents without any cash balance in hand or cash receipts (5th & 6th June 2007)

Adjusted net profit rate as 3.73 % 2.85 % 4.76% 3.27 % 2.51% Worked out by the ld. CIT(A)

Addition for Profit element on Total Receipts 18,45,357 3,332 2,68,069 8,82,743 10,94,950 as per adjusted NP Ratio- G

given in above column discussed above

Total Additions H= F+D+G 25,07,065 3,332 2,68,068 74,61,423 10,94,950

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 71 of 72

Income already offered in I 68,22,000 500 21,000 1,25,000 2,25,000 the relevant year under consideration Income already offered in J 6,00,000 49,14,935 49,12,103 46,65,035 26,71,388 the preceding year / available as credit from preceding year K = I + J 74,22,000 49,15,435 49,33,103 47,90,035 28,96,388 Total of above

Credit balance of income L=K-H 49,14,935 49,12,103 46,65,035 (26,71,388) 18,01,438 offered available for set off in subsequent years

In the light of above working, the total addition based on

seized material is worked out as below and same is reduced to

Rs.26,71,388/- by allowing relief of Rs. 24,09,812/-

[50,81,200 (-) 26,71,388]) :-

2008-09 2009-10 2010-11 2011-12 2012-13 Initial payment on 1,39,787 05.06.2007 & 06.06.2007 as unexplained expenditure Peak credit on 5,21,921 65,78,680 19.10.2007. Adjusted N.P. on 18,45,357 3,332 2,68,068 8,82,743 10,94,950 unaccounted income as per seized papers sustained as per above table TOTAL 25,07,065 3,332 2,68,068 74,61,423 10,94,950 Less: K (I+J) as 74,22,000 49,15,435 49,33,103 47,90,035 28,96,388 per above working table Now, addition to NIL NIL NIL Rs.26,71,388 NIL be sustained

I.T.(SS)A.Nos. 91 – 94 & I.T.A.No. 274/Ind/2016 and 117 to 120 and I.T.A.No. 680/Ind/2016 – ACIT v. Yogesh Hotwani and Yogesh Hotwani Vs. DCIT page 72 of 72

income of the assessee as computed above. Accordingly,

assessee’s grounds of appeal are partly allowed. 21. In the result, the appeal of the assessee is partly allowed

and Revenue’s appeal is dismissed for all the above

assessment years.

The order has been pronounced in open court on

17.1.2017.

Sd/- Sd/- (डी.ट�.गरा�सया) (ओ.पी.मीना) �या�यक सद�य लेखा सद�य (D.T.GARASIA) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER

�दनांक /Dated : 17.1.2017.

CPU*