M/S MAHENDRA CONSTRUCTION & M.G. BHANGADIYA (JV),NAGPUR vs. D.C.I.T CENTRAL CIR.2)1), NAGPUR
What did the Tribunal hold?
The Tribunal noted that during a survey under Section 133A on February 17, 2009, it was found that most bills and vouchers supporting entries in the books of account were unavailable. Shri Mitesh Bhangadiya admitted additional income of Rs. 11 crore for the group to cover discrepancies. The AO rejected the assessee's books of account under Section 145(3) and made additions. The CIT(A) deleted significant additions, including Rs. 4,52,09,844/- on account of bogus sub-contract payments and Rs. 5,61,52,024/- as unaccounted income, and directed the AO to estimate income at 16% of gross receipts. The Tribunal, considering the infirmities in the AO's assessment and the CIT(A)'s findings, and to meet the ends of justice, found it fair and reasonable to adopt a net profit of 16% on the gross receipts of Rs. 579 crores for the block period (AY 2007-08 to 2012-13). This was based on guidelines from a previous ITAT order in a similar case involving the same assessee and business activities. The Tribunal acknowledged that the assessee's books of account were not accepted for assessment purposes, making verification with regular books irrelevant for determining assessable income. The Tribunal also noted that the assessee had offered additional income during the survey. The operative direction was to bring the estimated income to taxation.
What were the facts?
These are cross-appeals filed by the assessee and the Revenue against the order of the CIT(A) dated December 30, 2015. The appeals pertain to assessment years 2007-08 to 2011-12. The assessee is Mahendra Construction & M.G. Bhangadiya (JV), and the Revenue is represented by the ACIT/DCIT. The core of the dispute revolves around additions made by the Assessing Officer (AO) following a search and seizure action. The CIT(A) had directed the AO to accept the income shown in the return filed pursuant to a notice under Section 153A of the Income Tax Act, 1961, and had also made certain deletions and adopted a net profit of 16% on gross receipts for estimating income. The Revenue's appeals challenge these deletions and the method of estimation.
What were the issues?
1. Whether the notice issued under Section 153A of the Income Tax Act, 1961, and the consequent assessment are illegal, invalid, and liable to be cancelled (Assessee's contention). The Revenue argues that the CIT(A) thwarted the purpose of search and seizure provisions by ignoring seized incriminating documents and directing taxation on a presumed percentage based on surmises. 2. Whether the CIT(A) ought to have directed acceptance of income shown in the return filed pursuant to notice under Section 153A and deleted the entire addition made by the AO (Assessee's contention). The Revenue contends that the CIT(A) was wrong in deleting additions made on account of bogus sub-contract payments and unaccounted income, without appreciating seized materials and statements. 3. Whether the CIT(A) erred in not accepting the prayer to adopt net receipt for determining estimated income after excluding recoveries like material supplied, sales tax, and service tax (Assessee's contention). 4. Whether the addition confirmed by the CIT(A) by adopting 16% of receipts is unjustified, unwarranted, and excessive (Assessee's contention). 5. Whether the CIT(A) erred in upholding the part addition made by the AO by adopting 16% of receipts (Assessee's contention). 6. Whether the CIT(A) was right in deleting the addition of Rs. 4,52,09,844/- made on account of bogus sub-contract payments, without appreciating that sub-contractors were only name lenders and had not executed any sub-contract (Revenue's contention). 7. Whether the CIT(A) was right in holding that incriminating diaries seized cannot be attributed to a particular concern, ignoring documentary evidence and admission of Shri Mitesh Bhangadiya that entries pertained to cash flow of the assessee group's business activity (Revenue's contention). 8. Whether the CIT(A) was right in deleting the addition of Rs. 5,61,52,024/- being unaccounted income, without appreciating evidence found during search and seizure (Revenue's contention). 9. Whether the CIT(A) was justified in directing the AO to adopt total income at 16% of gross receipts, ignoring AO's findings regarding bogus sub-contractors, unaccounted income, and gratification payments (Revenue's contention).
Which sections of the Income-tax Act were involved?
Section 153A,Section 145(3),Section 133A,Section 131,Section 194C,Section 148,Section 143(3),Section 234A,Section 234B,Section 234C
AI-generated summary — verify with the full judgment below
1288 F8s I+TANo5.66 to 70/Nag/2016 I.T_A.Nos-256 tq 260/Mag/2016 IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH; NAGPUR BEFORE SHRI P_ K: BANSAL, VICE PRESIDENT AND SHRI AMARJIT SINGH, JUDICIAL MEMBER I.T.A. Nos. 66 to 70/Nag/2016 Assessment Years:2007-08 to 2011-12) ACIT CENTRAL CIR 2(1), 3R0 FLOOR, ROOM NO. 312, AAYAKAR BHAWAN TELANGKHEDI ROAD, NAGPUR 440 001_ Vs MAHENDRA CONSTRUCTION & M.G BHANGADIYA (JV) 905, B WING; LOKMAT BHAVAN; WARDHA ROAD, NAGPUR 440010 PAN: AANFMS6SBB 'arff (Respondent) 34airef (Appellant) IT.A Nos.256 to 260/Nag/2016 Assessment Years: 2007-08 ta 2011-12) MAHENDRA CONSTRUCTION & M.G. BHANGADIYA (JV) 908-909, B WING, LOKMAT BHAVAN_ WARDHA ROAD, NAGPUR 440010 PAN: AANFMSGSBB 3dmraif (Appellant) Vs DCIT CENTRAL CIR 2(1}, AAYAKAR BHAWAN, CIVIL LINES; NAGPUR 440 001_ Wrrefif (Respondent) Revenue by Assessee by Date of hearing_ Date of pronouncement Shri 4 R. Ninave Shri K. P. Dewani 19/06/2017 30/06/2017 ORDER PERP_K_BANSAL_VE AIl these cross appeals have been filed against the order of the CIT(A) dated 30.12.2015, The assessee in all the Assessment Years in its appeal has taken the following common grounds of appeal: 4286 1284 I.T.A.Nos.66 to 70/Nag/2016 I.T.A.Nos.Z56 to 260/Nag/2016 "1, The notice issued under Section 1534 of IT. Act;, 1961 is illegal, invalid & bad in law and consequent assessment framed thereupon is liable to be cancelled. 2 The Leamed CITIA) ought to have directed to accept the income 35 shown in return filed pursuance to notice Ufs. 153A Of LT Act 1961 and deleted the entire addition a5 made by the AO. in the assessment framed, 3. The Learned CIT(A) erred in not accepting the prayer of assessee to adopt net receipt for determining the estimated income at the hands of assessee after excluding the recoveries made by the Government Departments on account of material supplied, sales tax &d service tax etc 4 The addition confirmed by learned CIT(A) by adopting 16%6 Of receipts Is unjustified, unwarranted and excessive APPEL{ 5. The learned CIT(A) erred in upholding the part addition made by A.O. by adopting 16% of receipts; 6. The assessee denies liability to pay interest under section 2344, 2348 and 234C of IT: Act 1961. Without prejudice levy of interest under section 2344, 234B and 234C of LT Act 1961 is unjustified, unwarranted and excessive: 2 In Revenue's appeal, during the assessment year 2007-08, 2008-dg and 2011-12, the Revenue has taken the following common grounds of appeal except change in the figures The grounds of appeal far the assessment year 2007-08 are reproduced a5 under: 1 Whether on the facts and circumstances Of the case ad in law the Ld. CITIA} was right in thwarting the very purpose Of search &nd seizure provisions Of the Act by ignoring seized incriminating documents ad thereby directing the AO to tax the Income on presumed percentage based on surmises. 2, Whether on the facts ad circumstances of the case and in law the Ld. CITIA) was right in not affording the opportunity to the AO of being heard during appellate proceedings despite p390 HSt I.T.A.Nos.66 to 70/Nag/2016 I.T.A.Nos.Z56 to 260/Nag/2016 AO has specifically asked of being heard vide his letter dated 19.02.2015 &nd thereby passing order in undue haste Ignoring provisions Of the Act; 3. Whether on the facts ad in the circumstances of the Case and in Iaw; the Ld, CIT(A) was right in deleting the addition Of Rs.4,52,09,844/- made on account of bogus sub- contract payments? 4 Whether on the facts ad in the circumstances of the case and in law; the Ld. CIT(A) was justified in deleting the addition of Rs. 4,52,09,844/- made on account of bogus sub- contract payments without appreciating the fact revealed from the seized materials ad statements recorded that the sub- contractors are only name lenders and have not executed any sub-contract? 5. Whether on the facts ad circumstances of the case and in law the Ld. CITIA) was right In holding that the incriminating diaries seized from residence Of the main person of the group cannot be said to be belonging to particular concern ignoring the documentary evidence and the admission of Shri Mitesh Bhangdiya himself that the entries in the diaries pertain to the details of cash flow of assessee group s business activity ad the entries in the diaries were not completely recorded in tie books Of account 6, Whether On the facts ad in the circumstances of the Case and in law; the Ld. CIT(A) was right in deleting the addition of Rs. 5,61,52,024/- being unaccounted income? 7 Whether on the Facts and In the circumstances of the case &d in law; the Ld. CIT(A) was justified in deleting the addition of Rs 5,61,52,024/- being unaccounted income without appreciating the evidences found and seized during the search and seizure action? 8 Whether on the facts and in the circumstances of the case ad in law, tte Ld. CIT(A) was justified in directing AO to adopt total Income of the assessee at the rate of 16% Of gross receipt by ignoring the findings given by the AO regarding bogus sub-contractors, unaccounted income and gratification pavments? I.T A.NDs.66 to 70/Nag/2016 I.t.ANos+256to 260/Nag/2016 44 p88 1281 9 On the fact ad circumstance Of the case and in law the Ld. CITIA) erred in accepting assessee' 5 contention that various sub contractors used to keep deposit of money withdrawn by them from bank with the assessee group for safe custody which was recorded on the credit side of the incriminating diaries without appreciating that if the contention of the assessee is true then the credit entries shall be in the name of the sub- contractors but the fact is otherwise 35 only names Of the banks were found written-there; 10 On the fact ad circumstance Of the case &nd in law the Ld CITIA) erred in accepting assessee's contention that the Sub contractors kept their money for safe custody with the assessee group and amounts in small quantities Were later withdrawn by them for meeting the expenses at sites by ignoring the fact that none of the names of the sub contractors appeared on debit side Of the incriminating diaries. 11, On the fact ad circumstance of the case and in Iaw the Ld CIT(A) erred in not calculating exact unexplained expenditure ad unaccounted investment mentioned in seized incriminating diaries a5 well as inflated claim of expenditure in various projects and directing the 4Q to assume certain percentage 12 On the fact ad circumstance of the case &d in law the Ld, CITIA) erred in holding that having been accepted receipts from the assessee for assessing the income in the hands of Sub contractors the payments made by assessee group to such sub contractors cannot be treated as non genuine; Ignoring the fact that sub contract payments were assessed in the hands of the assessee group 25 bogus sub contract payments ad In the hands of the sub contractors protective assessments were made by treating the entire receipts a5 Income a5 nO contract was executed 13, On the fact and circumstance of the case ad in law the Ld. CIT(A) erred in observing that unaccounted payments or unallowable expenses like gratification paid to various politicians and government emplovers have no corroborative evidence &n record to hold that assessee has made payments of ay illegal gratification- The anus in Or the assessee to 24 1246 H87 IT.A_Nos,66 to 70/ Nag {2016 I,T.A.Nos.256 to 260/Nag_ 2016 14 AO has specifically asked of being heard vide his letter dated 19,02.2015 and thereby passing order in undue haste ignoring provisions of the Act 3 Whether on the facts &d in the circumstances of the case and In law; the Ld; CIT(A) was right in deleting the addition of R5.4,52,09,844/- made on account of bogus sub- contract payments? 4 Whether on the facts &d in the circumstances Of the case ad in Iaw; the Ld, CIT(A) WaS justified in deleting the addition Of Rs, 4,52,09,844/- made on account of bogus sub- contract payments without appreciating the fact revealed from the seized materials ad statements recorded that the sub- contractors are only name lenders ad have not executed any sub-contract? 5, Whether on the facts and circumstances of the case and in law the Ld. CIT(A) was rlght in holding that the incriminating diaries seized from residence 0f the main person of the group cannot be said to be belonging to particular concern ignoring the documentary evidence ad the admission of Shri Mitesh Bhangdiya himself that the entries in the diaries pertain to the details of cash flow of assessee group's business activity ard the entries in the diaries were not completely recorded in ttie bpoks of account 6 Whether 0n the facts and in the circumstances of the case and in law, the Ld CITTA) was right in deleting the addition of Rs. 5,61,52,024/- being unaccounted income? 7 Whether on the facts and in the circumstances Of the case &d in law; the Ld CIT(A) was justified in deleting the addition of Rs. 5,61,52,024/- being unaccounted income without appreciating the evidences found and seized during the search and seizure action? 8 Whether On the facts ad in the circumstances of the case ad in law; the Ld CIT(A) was justified in directing AO to adopt total Income of the assessee &t the rate of 16% Of gross receipt by ignoring the findings given by the AO regarding bogus sub-contractors, unaccounted income &d gratification payments? 1232 Ha3 I.T_A.Nos-66 ta 70/Nag/2o16 Nin e I.T-A.Nos,256 to 260/Nag/2016 5 prove that the payments were genuine &nd incurred legally: As the cash payments were not recorded in the regular books of account and a5 the assessee failed to substantiate those pavments; the CIT(A) ought to have upheld that the entire amount Of Rs, 171.10 crores is unaccounted expenditure 14 On the fact ad circumstance of the case and in law the Ld CITIA} erred in relying o the decision of Hon ble ITAT in Bhangdiya group pf cases 35 at that time the information contained in incriminating diaries was not available either to the AO or to the appellate authorities while restricting it to 12%. The CIT(A) ought not have relied on the decision of Hon ble ITAT when seized documents prove clear concealed income and unexplained expenditure 15 On the fact ad circumstance of the case and in law the Ld. CIT(A) ought to have appreciated the fact that in the case Qf assessee's group it is not feasible to estimate the net profit at & particular ratio a5 Out of gross receipts of 579 crores the assessee group made unaccounted payments to the tune of Rs. 171 crores and hence spent only Rs. 408 crores towards execution 0f contract work; Whatever profit was derived on execution of the contract work by the assessee group; to that profit unexplained unrecorded expenses of Rs. 171 crores were required to be added to arrive at the correct taxable income af the assessee 16, On the fact & circumstance of the case and in law the Ld. CIT(A} failed to appreciate that the taxable income need not be equal to the actual net profit derived by the assessee as it may indude addition towards various other provisions like section 40A(3) , 40(a)(ia), 68, 69, 69C etc: and in the case Of the assessee group addition u/s. 69C is applicable 3 In the assessment vear 2009-10 ad 2010-11 the Revenue has taken similar grounds of appeal but has taken one more ground being ground Na. 8 and due to which the number of subsequent grounds got changed and total effective grounds became 17_ The said ground reads as under:
"
Whether on the facts and in the circumstances of the case and in laW; the Id CITTA) Wa5 justified in deleting the 8 046_ 1247 I.TAANos.66 to 70/Nag/2016 I.TA.Nos.256 to 260/Nag}Z016 addition Of Rs.22,00,978/- made 4s 40A(3} without appreciating the evidences regarding cash payments in contravention to provisions Of section 40A(3); found and seized during the search and seizure action. 4 In assessment year 2010-11 the figure is Rs.42,87,398/- in place of Rs.22,00,078/-. 5, The facts and circumstances and issue involved in all the six years of the appeal are similar ad identical therefore, all these appeals are being disposed of by this consolidated order for the sake of convenience_ The assessment year-wise detalls of date of filing of return, returned income assessed incame and the section are laid down as under: Sr Na A,Y_ Date pf filing Returned of retur Income Assessed Ircone Section Additions disputed 2007-09 31,01,.2013 3, [4,67,720 1,71,09, 624 1534 101361868 2008-09 31.01,2013 64, 90,859 30,56, 92,367 1534 278599623 2009-10 31,01.2013 14,65, QQ, 00j 22, 16, 15, 902 153A 175818575 2010-11 31,01.2013 5,59,80,040 23,34,68,032 1534 196512672 2011-12 31.01.,2013 2,57,23,260 3,87,33,204 1534 B0232608 6 The facts of the case, in brief, are that Search and seizure operations were conducted in the residential premises of Shri Mitesh G. Bhangdiva On 19/7/2011. Simultaneously search actlons were carried out in other premises belonging to Bhangdiya Group including three residential-cum-business premises, one office and one residential premises which are spread across Nagpur, Amravati, Chandrapur, Wardha and Bhopal, Another seven premises at Nagpur, Chandrapur and Mumbai were also covered under section 133A of the I.T. Act; During the course of search, books of accounts and large number of incrii Iminating documents and dlaries were found and seized: Thereafter notices Ujs 1534 of the I.T. Act dated 28/12/2012 were issued 139h I,T.A.Nos.66 to 70/Nag/2016 I.T,A.Nos-256 to 260/Nag/2016 and served on assessee on 01/01/2013 requiring him to file the returns of income within 30 days from the receipt of the notice. The assessee has flled the return for each of the assessment years in response to notice UJs 1534 declaring income as mentioned in the table given herein above 7.1 The assessee i.e: Shri Mitesh Gotumal Bhangdiya is the key person of the group. His family consists of the following members: Shri Mitesh G. Bhangdiya (MGB) + Megha (Wife of MGB) Kirtikumar (son) t Sonal (wife of Kirtikumar) Shrikant (son) + Aarti (wife of Shrikant} Neha Daughter Besides, the business Is handled by Shri Kirtikumar M Bhangdiya (hereinafter referred to as KMB) and Shri Shrikant M Bhangdiya (herelnafter referred to 35 SMB) The other important persons in the group are; Shri Sanjaykumar Rameshchandra Heda, husband of MGBs sister , Smt; Pradnya, residing at Amravati and Smt; Manisha O. Maniyar; widowed sister of MGB who lives with the MGB family: 7.2 4.1 The business concerns of the group (including those discovered as a result of the search action) are as follows 1, Ms M.G. Bhangdiya (AERPBZSO3E) (Prop: MGB); converted into & company Ms M.K.S. Constro-venture Pvt. (AAHCMO383T) Ltd. from 01.04.2011. Ms Mahendra Construction; Prop. Shri Sanjay Heda (MC) (AADPH7109J) Ms Mahendra Construction 85 M.G. Bhangdiya (JV) (AANFMS658B) Ms Kirtikumar M. Bhangdiya (Prop. KMB); converted Into a company Ms M.K.S. Acme Bulldcon Pvt, Ltd, (AAHCM0382K) from 01.04.2011. (AGYPB1659G) Ms KM; Bhangdiya Mahendra Construction (JV) (AAKFK18ZOC) Ms Shrikant M. Bhangdiya (Prop. SMB)(ATCPB1337J) 2 3_ 4_ 5 6 APp 493 1235 IT,A.Nos.66 to 70/Nagf2016 I.T,A.Nos.256 to 260/Nag/2016 8 7 8 9 10 11, Mitcon Infraproject Pvt: Ltd, (MIPL) (AAGCMI868H) Lokshahi Publications Pvt, Ltd. (LPPLJ(AABCL6673L) MITZ Infraproject Pvt Ltd (AAGCM304ZA) Sakshi Gruh Nirman Pvt, Ltd. (SGNPLHAAOCS7974G) Balaji Stone Crusher & Infraventure Pvt: Lta (AADCBS273C) 7.3 The group has also entered into joint ventures with various ather civil contractors of the city to Secure some civil contracts. A few of them are listed belaw: 1 2 3. 4 Ms MG: Bhangdiya & Hitbhav Engg (JV) (AAOFM47ASL) Ms M.G, Bhargdiya & S. $; Patil & Co: (JVJ(ABIFS3645L) Ms Darshan Construction (JV) (AAHFDO654N) Ms M R Dhoble 8s K M Bhangdiya (JV)(AAPFMO6ZZB) 7.4 The nature of the business of the group primarily is executing civil contracts. The group work mainly for Government departments Iike Ms Vidarbha Irrigation Development Corporation and engaged in executing variots contracts pertaining to the irrigation projects in the state of Maharashtra, The evidences seized from the business and residential premises reveal that the entire business activities are managed by Shri Mitesh Bhangdiya and his sons. Pe M 7.5 During the course Qf search operations several incriminating documents were found and selzed from the residential premises of Shri Mitesh Bhangdiya. Item no 1 to 65 of Annexure-B seized from his residence are the diaries containing ledgers, daily cash books and bank books maintained by the Bhangdiya group. 7.6 Survey operations us 1334 were also conducted against the Bhangdiya Group on 17/02/2009. During the survey operations; it was noticed that the assessee group has Inflated the expenses, especially sub- contract expenses; to earn unaccounted income. The assessee Group has accepted the discrepancies and disclosed additional income of 1316 Fa93-_ IT.A.Nos.66 to 70/Nag/2016 I.T.A.Nos-Z56 to 260/Nagf2016 Rs.11,04,48,592/- for the period from AY 2006-07 to 2009-10. Apart from the above disclosure made during survey operations, the assesee Group has also made additional disclosure Of Rs 26 Crore consequent to the search operations, as discussed in the subsequent paras below.
The Assessing Officer in para-5.1 af the assessment order has highlighted the significance of diaries seized at Annexure B-l to B-65. According to the Assessing Officer , the analysis of the entries in the diaries reveals that on receipt side variaus receipts including receipt from withdrawals from bank accounts of group entities and sub-contractors were recorded and on payment side entries of expenses like Interest payments; repayment of loans, deposits Into bank accounts; household expenses; personal expenses; payment to various persons in cash and investment in properties are found recarded. The Assessing Officer also found that some of the entries made in the seized diaries were also found reflected in the regular books account maintained by the Bhangdiva group: A statement of Shri Mitesh Bhangdiya was recorded on oath on 20/07/2011. In his sworn statement recorded during the course Of earch action; Shri Mitesh Bhangdiya was confronted with the entries borne out from the seized diaries marked as B-l to B-65 and to explain the contents of these diaries, Shri Mitesh Bhangdiya in his reply ta Q-30 of his statement recorded has submitted that the entries in the diaries and the ledger pertain to the business receipts and business expenditure but at present it is very difficult to state whether the entries recorded in the seized diaries are accounted in the regular books of account and the same can be explained only after verification of entries of diaries with the regular books of account maintained by the Bhangdiya group. However, in his reply to Q-38 of his statement recorded on 20/07/2011, Shri Mitesh Bhangdiya voluntarily offered additional unaccounted income of Rs.26 crores (twenty six crores) for the block period #yt Rst 1297 I.T.A Nos.66 to 70/Nag/2016 I.T_A.Nos,256 to 260/Nag/2016 J0' including the current financlal year over and above the regular income declared Fn the returns of income filed for the assessment years falling within the block period in the hands af different assessees Of assessee group; During the course of assessment proceedings, Shri Mitesh Bhangdiya was summoned and his statement was again recorded on oath on 27/07/2013 by the Assessing Officer , Shri Mitesh Bhangdiya has confirmed his earlier statement_ made an oath on 20/07/2011 during the course Qf search action confirming the additional declaration of Rs.26 Crs. Shri Mitesh Bhangdiva in his statement recorded on 27/07/2013 by the Assessing Officer has clearly deposed that the seized diaries were primarily maintained by his father Shri Gotulalji Bhangdiya. The Assessing Officer has also recorded a finding that the seized diaries contain payments made in cash for probable extraneous gratification to various poli liticians, government officersjofricials which are recorded therein; Prima-facie the Assessing Officer has neither examined such parties referred in the order nor brought any corroborative evidence n record in support of his finding that: te payments made In cash are for probable extraneous gratification to variou? politicians &nd government officersjofficials; despite ample time available 7,8 The Assessing Officer had made efforts to match the entries of tax payment and receipts with the entries in the regular books of account of the Bhangdiya group. The Assessing Officer found instances where small amounts are found reflected both in the incriminating diaries and regular books of account 7.9 The Assessing Officer noted that the assessee group has claimed huge expenses on account af sub-contract payments. During the AY 2008- 07 to 2012-13 the Bhangdiya group has debited Rs.361 crores towards the sub-contract payments against the gross receipts aggregating to Rs.579 crores which constitutes 628 (not correct) of the gross receipts. On pse psb +x863 #,T,A.No5.66 to 70/Nag/2016 I.TANos.256 tD 260/Nag/Z016 M1 verification of bank accounts of the sub-contractors, the Assessing Officer found that payments were credited In the bank accounts of the sub- contractors through the cheques issued by the Bhangdiya group and the amounts were subsequently withdrawn in cash The Assessing Officer has further recorded a finding that such withdrawals from the sub-contractars accounts are found credited t0 the daily cash balance of the seized diaries which were utilized for unaccounted payments or unaccounted investments. Shri Mitesh Bhangdiya in his statement recorded on 14/09/2011 had admitted that the entries In the seized diaries marked as Annexure B-1 to B- 65 pertain to daily cash handling of the group, and has reaffirmed in his subsequent statement dated 27/07/2013 recorded by the Assessing Officer The cash withdrawn from the bank accounts of the sub-contractors and by then and kept with the assessee for safe custody and to be issued at various sites as per the requirements on behalf of such sub-contractors. The Assessing Offlcer concluded that these sub-contractors are name lenders, therefore; the payments made to them is bogus expenditure: The Assessing Officer in his a5sessment order, though has discussed the issue of allowability or otherwise of the expenditure made to these sub-contractors uls 69C but no such addition disallowance finalily has been made, 7.10 The Assessing Officer in his order noted that statements of 17 sub- contractors to whom payments have been made by Bhangdiya group under the head subcontract payments were recorded during the survey proceedings in which they have confessed that they were mere name lenders The Assessing Officer has also reproduced the statements of couple of sub-contractors in the assessment order. The Assessing Officer has referred to the statements of 11 sub-contractors agreement for sub- contract and all income-tax matters of these sub-contractors were being handled by the Bhangdiya group. The Assessing Officer has also mentioned that the persons at sites were getting 3 small amounts ranging between Rs.15,000/- to 25,000- at the sites a8 advance from the assessee group 4288 43g 1a44 I.T.A Nos.66 to 70/NagfZ01s I.T.ANos.256 to 260 Nag/2016 12 periodically in cash for making necessary expenses at sites or any other task assigned to them and the sub-contractors are also getting approximately Rs.15,0001 to 25,000}- per month, Thus, the Assessing Officer has concluded that the payments made to the sub-contractors are bogus which were siphoned back by the Bhangdiya group as per the seized diaries. 7,11 The Assessing Officer had done the scrutiny of entries made in the diaries seized at Annexure B-l to B-65 in the assessment order. The diaries are in the form of cash books which contained cash receipts on one side and cash payments on the other side of each page. The receipt side of the seized diaries contains the amounts withdrawn from the bank accounts of the sub-contractors, the amounts withdrawn from the bank accounts of the Bhangdiya group concerns and amounts and amounts recelved from individuals; The narration of the entries in some cases mention name and place of the banks and at some places names of some of the sub-contractors are alsa found reflected. The cash receipts from the other concerns of the Bhangdiya group are also reflected along with their bank names and such entries of cash are also found reflected on the payment side as well: The Assessing Officer observed from the seized diaries that there were cash transactions amongst the group concerns due to which some entries were found on both the sides: Thus; the Assessing Officer after considering the withdrawals from the bank accounts of the sub-contractors and the withdrawals made by Bhangdiya group concerns arrived at the financial year-wise unaccounted receipts as found credited in the seized diaries as under: Financial Year Amount (In Crores) 2006-07 20,07 2007-08 36,12 2008-09 19,67 Izcc 84+ 4347 I.T,A.Nos.66 to 70{ Nag/Z0I6 I.TA.Nos.256 to 260[Nag/2016 2009-10 44.34 2010-11 51.2 2011-12 1I.00 Total 182.52 7.12 According to the Assessing Officer, the Bhangdiya group has claimed huge expenses towards sub-contract payments ad after depositing the cheques in the respective bank accounts of the sub-contractors, cash was allegedly withdrawn by the Bhangdiya group and brought into the diaries for utilizing thie funds for unaccounted expenses such as gratification to politicians and government officersjofficiais The Assessing Officer has further recorded a finding that the cash payments entered in the seized diaries are of various nature such as household expenditure, donation/charity; salaries to staff and domestic help, office expenditure; site expenditure, expenditure on machinery, legal payments to individuals, cash transfer, cash payments to group concerns and cash payments made towards purchase of agricultural lands, payments towards transpartation, petrol diesel expenses etc. The Assessing Officer in order to elucidate the modus-operandi has reproduced few scanned coples of pages from seized diaries and ledger in the assessment order. The unaccounted payments; according to the Assessing Officer , given in diaries, are computed financial year-wise as Under: # Financial Year Amount (In Crores) 2006-07 7,99 2007-08 28,89 2008-09 19,71 da98 kze6 13o| I,T.A.Nos.66 to 70/2 Nag 12016 I.T,A_Nos.256 to Z60/Nagf2016 '04 200g-10 52.09 2010-11 50,33 2011-12 12.09 Total 171.10 7.13 The unaccounted receipts determined by the Assessing Officer financial year-wise are to the tune Of Rs.182.52 crores, Therefore, the Assessing Officer has considered entire unaccounted receipts of Rs.182.52 crores for addition in the hands of various concerns of Bhangdiya group. The Assessing Officer gave a finding that efforts were made to Iink the cash withdrawals from the bank accounts of the subcontractors and the bank accounts of various concerns of Bhangdiya group which; according to the Assessing Officer , claimed bogus sub-contract payments with reference to that particular sub-contractor, The relevant finding given is as under: "Since it was not feasible to correlate the withdrawals from ali the sub-contractors of the assessee group with the respective group concerns; 21 sub-contractors bank accounts were verified, 6 It was noticed that cash withdrawals from the bank accounts Of these sub-contractors were done immediately after cheques were credited by the respective group concerns: These cash withdrawals were then entered on the receipt side with bank names in the incriminating diaries in date wise manner In view Of this; cash withdrawals from the bank accounts of the Sub- contractors; a5 entered in the diaries; are added in the hands of respective group concerns in proportion to the amounts cheques credited by the respective group concerns Total of these verified cash withdrawals; to be aded in the hands of respective group concerns; comes Out to be Rs.54,40 crores; 7.14 Thus, according to the Assessing Officer , out of the total unaccounted receipts of Rs.182.50 Crs _ a sum of Rs.54.40 Crs. is attributable to the amounts deposited in the bank accounts of the sub-contractors by account 3 0 I3q_ 18G I.T.A.Nos,66 to 70/Napf2016 I.T.A.Nos,256 to 260/Nag/2016 payee cheques by various cancerns of Bhangadiya group which was subsequently withdrawn in cash; which Is found reflected on receipt side of the seized diaries. This amount of Rs.54.40 Crs, has been added by the Assessing Officer in the hands of the respective group concerns Qf Bhangdiya group In proportion to the amount of cheques credited by the respective group concerns in the various assessment years falling in the block period: Based on such methodology, the Assessing Officer has made the addition in different assessment years falling within the block period in the case of the assessee 7.15 As regards ta the balance amount Of unaccounted income of R5.128.12 Crs (Rs.182.52 Crs.-Rs.54.40 Crs:), the Assessing Officer in para 9.2 & 9.3 has recorded the following finding: "With regard to the balance amount Of Rs.128.12 Crores; efforts Were made tp correlate the cash withdrawals which were credited on the receipt side of the diaries with the bank accounts of the remaining subcontractors. It is essential to note that the assessee group is having more than 100 sub- contractors; Vide questionnaires Issued; assessee group was specifically asked to produce the sub-contractors who have not appeared, along with their bookS Of account and bank accounts for verification but; there was no cooperation from the assessee group. Further , the assessee group was asked t0 explain the entries in the diaries but no such explanation was Qfrered As the entries in the diaries were made giving narration of either name of the bank 0r name of the bank along with the branches and 25 some Of the Sub-contractors are having bank accounts in the same bank and branch; it was difficult to match the entries in the diaries with the particular Sub-Contractor from whose account cash was withdrawn brought into the diaries In view Of the above, and in view Of the assessee's non- copperation In this matter, the only opinion left is to add the balance amount of Rs.1Z8.12 Crore to the Income of the group concerns on prorate basis L.e. in the ratio Of contract receipts 4ee ITA.Nos.66 to 70/Nag/2016 I.T,A.Nos-256 to 260/Nag/2016 16 1383 shown by the group concern In the respective assessment years to the total turnover of the group concerns in that year; 7.16 It iS thus seen from the above finding that the Assessing Officer has made the total addition of Rs.182.52 Crs. in the hands of various concerns of Bhangdiya group in various assessment years falling within the block period on prorate basis for want of proper correlation between the amounts credited in the seized diaries and the withdrawals made from the bank account of the sub-contractors. An addition of Rs.54.40 Crs: has been made on account of entries of withdrawals from the bank account of sub- contractors recorded in the seized diaries in proportion to the cheque payments. 7.17 As regards to the balance addition of Rs.128.12 Crs-, the Assessing Officer in his finding reproduced above has stated that efforts were made to correlate the cash withdrawals credited On the receipt side of the diaries with the bank accounts of the remaining sub-contractors but the same could not be accomplished, therefore,; the Assessing Officer made the addidon,of APPEL L Rs.128.12 Crs in the hands of various group concerns on prorate b 4s in 2 proportion to the contract receipts declared by such group concerns: in mi varlous years falling within the block period. 8 When the matter went before the CIT(A); the CIT(A) did not appreciate the method of making the addition by the Assessing Officer in respect of the gross receipt of Rs.182.52 crore but directed the Assessing Officer to compute the addition by estimating the profit by applying rate of 16% on the gross receipts received by the business entities who have finally executed the work among the various assessee group concerns including the assessee; The CIT(A) while estimating the profit @16% appreciated the order of the Tribunal in the case of the assessee group In ITANos: 268, 269 and 285/Nag/2012 In the case of the assessee dated 03/04/2013 for the |304 43- Ia_ I.T.ANqs,66 to 70/Nag/2016 I.T.A.Nos.256 to 260/Nag/z016 17 assessment year 2006-07 to 2008-09 in which the Tribunal in consequence of the evidence found during the course Of survey operation as well as recording the statement of various sub-contractors on which the Assessing Officer has relied while making the addition during the impugned assessment, directed the Assessing Officer to work out the income by applying net prafit @12%. The CIT(A) has directed the Assessing Officer to adopt 16% of the gross receipts as the net profit for the black period of the search comprising of the assessment year 2007-08 to 2012-13 instead of 12% directed by the Tribunal keeping in view that the assessee had made the undisclosed investment found during the course of search in the assets and jewellery to the tune of Rs.26 crores and Rs.2.37 crores, To cover up the undisclosed investment in the immavable assets amounting to Rs.26 crores and in jewellery of Rs,2.37 crore respectively, the net profit was directed to be adopted 169f of the total turnover of Rs.579 crores which comes to Rs.92.62 crores ignoring the fact that the gross receipt of the assessee group includes the sum of Rs.50,00,98,566/- in respect of the sales tax and royalty which do not constitute of any profit element but are in fact the liability to be discharged to the thirty party by observing as under; "10.0 I have carefully considered the submissions f the AR of the appellant; the assessment order , the material on record, the remand report of the AO &d the judicial decisions relied upon by the AR 11,0 On careful examination of the material facts, the following facts have emerged from the submissions of the AR of the appellant 11.1 The AR has contended that it was explained before the AO that the deduction like royalty, VAT; Work contract taxes material supplied in respect to various wOrks executed by assessee are to the tune of Rs; 51,29 crores and n income could be said to have been earned in respect to such deduction for the purpose Of determining the incpme in the caSe Of 1362 I.T_A.Nos.66 to 70/Nagf2016 I.TANos.256 to 260/Nag/2016 18 {Sott 1365 assessee, The gross receipts before deduction are to the tune of Rs. 579 crores and the net receipt from it; the assessee possibly could have derived income from contract business are only to the tune Of Rs. 527.71 crores: The estimated income declared by assessee in the various returns filed under section 153A4 of IT Act 1961 is more than reasonable and thus there is no warrant Or justification for making ay addition at the hands of assessee: The action of AO, in not considering receipts at 527,71 crores ignoring the binding decision of Apex Court in the case of Brij Bhushanlal . reported at 115 ITR 524 (SC) is unjustified; 11.2 The AR has further 'pleaded that the assessee is engaged in the activity of execution of work for Irrigation Department of State Government of Maharashtra. The work has been allotted to the assessee group for executing the orders year after year On completion of the work allotted from time to time There is due process of verification for execution of work before releasing of payment: In the case of assessee group execution of work and receipts for the same are not in dispute: The work having been executed which was not in dispute 3 reasonable rate of profit alone could be liable to be assessed at the hands of assessee. The assessment of income at more than 40% of the receipts in no manner of consideration can be considered a5 reasonable EllR 11,3 The AR has enclosed details Of the business income assessed by the A.O: in terms of percentage Of gross receipts 0 shawn in the returns of income by various entities Of the group: The various percentages of income a5 computed by the AR Jmi would indicate that the Income assessed by A.O. Is inconceivable to have been earned On the business receipts received by assessee group: Therefore ; according to the AR, the substantial addition made at the hands Of the various business entities Of assessee group is excessive and unreasonable; Income from Contract Business Assessed by AQin %terms: Partlcular AY AX AY AY AY AY AY 2006- 2007 - 2008-09 2009-10 20I0 2011- 2012-13 07 Q8 11 12 11.790 41.270 35.6094 18.602 27,46% 49.5096 9.3490 10,78% 43,13% 25.449 11.0400 21.7946 33.0500 27,7306 MJs MG Bhangdiya MKS Canstro Venture P. Ltd, Ms. Mahendra Construction Mfs. Mahendr Const; & M,G. Bhangdiya JV 49,5306 73.44D6 17.6906 41,819 16.039 1366 Izef_/303 IT.A.Nos.66 to 70/Nag/2016 IT.ANos.256 to 260/Nag/2016 19 Ms KM Bhangdiya 11.979 23.39%6 26.76Q0 26,269 MKS Acme Build P Ltd 15,225 13.9406 Ms MG Bhangdiya and 10,2806 Hitbhav Engg JV 66,5396 11.9800 27.8306 0.00%, Ms MG Bhangdiya and 55 PATIL JV 54.8290 129,9206 13.180 MS K M Bhangdiya JV Mitcon Infra Praject P Ltd 25.2896 39.5206 Consolidated 10,0706 10.0090 10,00% 12.3696 47,0196 74.369 18.5296 34.2590 49.9794 44.5994 114 Jt is seen that In the case Of assessee group books of account were rejected in regular assessment framed, Prior to action under Section 132(1) Of IT Act 1961. The income returned by assessee {5 also On estimated basis being percentage Of net receipt received by each of the business entities of the assessee group. The appellant during the assessment proceedings has explained before the A.0. that the verification Of the seized documents with reference to boOks of account loses its relevance in 75 much a5 that the books of account have not been relied upon by assesseg at the tme Of declaration of income and thus it would be only fair to determine 3 reasonable income On estimated basis which could be Said to have been derived from the net business receipts received by various business entities of assessee group. 11.5 In the case of assessee group, the assessments under section 1534 cf T Act 1961 have been framed for assessment years 2006-07 to assessment year 2012-13. The nature of activity being execution of government contracts was the same during all the assessment years; In assessment year 2006-07, the nature Of work executed for Vidarbha Irrigation Development Corporation remains the same a5 in the case Of assessee for subsequent assessment years The sub contractors who have executed the works are also similar in the various assessment years: The A.O. in the case Of assessee for assessment '2006-07 has accepted the income &s shown On teeretue Urder section 153A of IT Act 1961 at about 129 of the receipts; gross The A.O, having accepted the net profit of 12% on the receipts for assessment ear ` 2006-07, ought not have made additions on different footings in the case Of a5sessee group for subsequent assessment years under the similar Circumstances 11.6 The perusal 0f the assessment; order would make it evident that the source of income Of the various business entities Of the group is only in respect to execution of government +384 H306 , I307 IT.A.Nos.66 to 70/Nag/2016 I.T_A.Nos.256 to 260/Nag/2016 20 contracts ad It has no other majar activity of business where from the income is derived or generated. The notings found in the seized documents are part of the gross receipts received fram the government department The various notings in the seized document are part of the gross receipts of contracts received by group entities is not disputed The inference drawn by Id AO. I5 that the entries in the seized document lead to inflating the sub contract payments which have been utilized for incurring illegal expenses: The aforesaid inference drawn by A.O. is without any finding Qf a fact nor, it has been corrobarated with any independent evidence In the case Of assessee nO corroborative evidence or material was found during the course Of search or anything has been brought On record subsequently In the course of assessment proceedings to establish tfat the notings made in the seized document are in relation to incurring of any Illegal expenses. 117 The AR has contended that the notings were made in the seized document at the instance Of late Shri Gotulalji Bhangdiya who has expired in the month Of April 2011. Therefore; the assessee to the best of his ability has made efforts to explain the notings; The employees of assessee in whose handwritings the notings found in the seized document have been examined by A.O. in the course of assessment proceedings. The emplovees while admitting that writings belonged t0 them have also stated that the aforesaid notings have been made at the instance &f late Shri Gotulalji Bhangdiya, The aforesaid independent statement recorded by A.O. supports and substantiates the explanation submitted at the time Of search and in the subsequent proceedings that the notings are in respect to movement 0f money: 11.8 The perusal of the seized document would make it evident that it cannot be identified to one individual business entity of assessee group, The transactions noted in the seized document are Of mixed nature being business, personal and investment The document being not related to any one identified entity, the notings made cannot be held 35 unexplained credit t0 be apportioned amongst the various business entities. In fact; ever as per the AO:, the seized document does not belong to any one assessable individual In the absence of seized document being identified to any one individual entity and same being not identinied t any business entity; it cannot be held to be 35 Pel mDSk 13o8 {36t- {305 I.T.A.Nos.66 to 70/Nag/2016 I,T,A,Nos.256 to 260{Nag/016 21 belonging to business entity SO aS t make estimated addition at the hands of various business entities on proportionate basis of turnover of such group entities: 11.9 The A.O: in para 6 of the assessment order has observed that assessee group for A,Y, 2006-07 to 2012-13 has debited Rs.361 cores towards sub-contract payments Out of gross contract receipts from the Government aggregating to Rs.579 crores which i5 more than 62% Of gross receipts, It is seen that subcontract payments include various Other payments to associate concerns which are considered &5 receipts In the case of associate concerns for making assessment by the same A.Q. The actual payment to Outside subcontractors is Rs,263 crores only which Is 45% of gross contract value The finding of A.O. to the extent Of sub-contract expenses at 62% is factually not correct; 11.10 In assessment order at para 5.1, the A.O has discussed the significance of the diaries 8-] to B-65 and has observed a5 under; "The analysis of the entries in the diaries teveal that 01 receipt side various receipts_ indluding receipts frm withdrawals from bank accounts ot_group entities and Sub contractors were _recorded_and on pavment_side entries_of expenses Iike interest_payments; renayment f_Joansz deppsits into bank accounts; bouse hold expenses personaL expenses_payments_to_various_persons in casb investment_in properties etc were_tecordad For the FY. 2006-01 to 2008-09 ad 2Oll-12 the cash books &d the ledgers mainly contain the cash receipts ad the payment entries in cash, It Is interesting to observe that some of the entries in these diaries were also rerlected in the regular books Of accounts maintained by the assessee group, The same para refers tO the reply to question No. 30 of the deposition made by Shri Mitesh Bhangadiva On path On 20/07/2011, wherein Shri Mitesh Bhangdiya has stated that seized documents are details of cash flow. The A.O. at page 9 in the same paragraph has observed that they contain probable extraneous gratifications It is evident that A,0. has mo evidence on record for any Illegal gratification but observation is made on 1306_ {e& 13o4 I.T.A,Nos.66 to 70fNag/2016 I,T,A.Nos-Z56 to 260/Nag/2016 22 inferences &nd presumption. The observation of the AO at para 5 1 inf act clearly explain the nature of entries found noted in the seized document wherein the Id. AO has recorded & finding that receipts are from bank accounts of group entities a sub- contractors On the face Of such observations, the conclusion drawn by the Id. A.O. holding that credit entries are assessable incone at the hands of assessee i5 unjustified 11.11 The A,O. at para 6 Of assessment order has discussed the nature Of sub-contracts; The A.O. has On enquires from bank accounts found that withdrawals made have been credited in daily cash balance of diaries. The AO; on inference has observed that same are utilized for unaccounted payments. The Ao at page 17 has Observed that most Of the sub- contractors are name lenders and are of meager means and same are emplovees. The names observed are Shri Kesharsingh Rotele and Firous Khan etc It is seen that both individuals as observed are assessed by Same AO. The income from Sub- contract work done for assessee group has been accepted in the assessment framed ufs 14303)/153C of IT Act 1961 on the same date The receipts from a5sessee group having been accepted for assessing Income at the hands of such individuals, payments made by the assessee group cannot be doubted a5 non genuine at the hands Of assessee Similarly A,o. has observed names of other sub-contractors Out of names Of"' 'sub-. contractors observed Shri Sanjay Malani, Shri Chintamai M Nakade, Shri Vishal Rachalwar, Shri Dwarkadas M. Bhutada, Shri Dnyaneshwar Meshram and Shri Suresh Masram have been assessed u/s 153C by the same A.O: The receipts from assessee group having been accepted for assessing the income in the hands of sub-contractors, the payments made by assessee group to Such sub-contractors cannot be doubted as non-genuine in the hands of various entities of the Bhangdiya group. FELL 11.12 The A.O, at para 7 has made anlysis of diaries marked as 8-1 to 8-65, The A.0 at para 7.1 has categorically observed that receipt side contains amount withdrawn From banks of assessee group concerns ad individuals The financial year wise receipts entered in these diaries were computed at 182,52 crores: It is peculiar to note that the Id. A.O. at One hand has abserved that withdrawals from bank account Of business concerns and individuals which were found credited on left side of the diaries and at the Same time he has conctuded 3 Jmi Izi 13zi 7z84 IT.A.Nos.66 to 70/Nagf2016 I.T.A.Nos.256 to 260/Nag/2016 23 the same receipts of credits a5 unaccounted income Of the group. The AR has contended that the Id A0. has not doubted the deposits in the bank account of assessee. Infact; they are deposit of receipts which are considered as income; therefore withdrawals of such amount cannot again be assessed a5 income: 11.13 The A.O. in the assessment order has observed that the amount withdrawn from diaries is utilized for unaccounted payments Or unallowable expenses Iike gratification paid to various politicians &d Government employees: However; the assessment order does not refer to any corroborative evidence on record to hold that assessee has made payments of any illegal gratification. In fact A.O. at page 9 has Observed that payment made in cash is for probable extraneous gratification which shows that this is a probable view taken by the AO without bringing the issue t0 & logical conclusion: Therefore; the working made by A.O. at page 36 to 38 about analysis Of payments out of seized documents are just adverse inference drawn Qn assumptions &d is not based on any corroborative evidence on record. 11,14 The A.0. has made observation at para 7.3 as regards to the quality of work executed by the assessee group and in particular visit 0f A.O. to various Sites where work Is executed by Bhangdiya group: The AR has contended that it is just an oral information obtained behind the back of assessee which has no evidentiary value Assessee group has executed work a5 per standard parameters specified in the tenders allotted to the assessee group. The State Government has due process Of verification as to quality ad quantity of work executed before release of payments. In the case Of assessee successive works were allotted year after vear which itself demonstrates the fact that the State Government had no question a5 to quality of work executed by assessee group: 11.15 The AO in para 8 has discussed &s to confronting of seized documents to assessee. The replies submitted have been partly reproduced. It Is seen that in the course of search, the statement of the Shri Mitesh Bhangdiya was recorded On 20/07/2011 &d the assessee in answer to question No-30 has explained that seized documents are details of cash flow and Same has been reproduced in assessment Order On page 5 1zo8 _^ Izi} I.T.A.Nos,66 to 70/Nag/2016 I.T,A.Nos-256 to 260/Nag/2016 24 During the assessment proceedings too; the assessee has explained that the diaries are notings for movement of cash in reply to question No: 23 in the Statement recorded On 27/07/2013. The assessee all along in the course of assessment proceedings had explained that the seized documents are to be in the nature of notings for movement of fund It was explained in the course Of assessment proceedings that the sub contractors on withdrawal of money from their bank accounts used to keep in brustisafe custody the amounts which are found to be noted in the seized documents. The explanation submitted by assessee was verified by the A.O. and it was found that the withdrawals made from the bank accounts Of the sub contractors Is On certain occasion credited In the seized document It was further explained that the amounts credited In the seized document being the amounts received from the Sub contractors were remitted to the sites where such Sub contractors were executing the work: The amount remitted was through any representative of the subcontractor 0r any person going to various sites which are located at remote places; The seized documents contain notings In respect to handling of cash by late Shri Gotulaljee Bhangdiya Who has expired in April 2011. The assessee in the course of assessment proceedings has explained as to how notings happened to be made iIn the seized document; In the case of assessee the statement of a5sessee was recorded on the seized document and in particular questions were asked a5 regard to the names which had similarity with the names Of some politicians: The assesse8 In the statement recorded on oath has clearly explained that the notings made in the seized documents had nothing to do with political leaders In 35 much a5 such political leaders have no business transaction with any Of the business entities Of Bhangdiya group. The assessee in his statement made in the course Of assessment proceedings had deposed that the seized documents are in respect to movement Of cash with regard to activity of business, personal expenses and investments made by assessee Thus; the AR has contended that neither the Investigation Wing of the Department nor the AO. in a span pf almost more than three an half vears have brought any evidence on record to show that the various notings made in the seized documents are in relation to ay illegal expenses incurred by assessee group. The AR further contended that explanation submitted by assess8e was substantiated by submitting independent evidence Of affidavits Of sub-contractors that they had collected back the EL Jwo5s Izp_ /+_ 43e4 I.T.A.Nos.66 to 70/ Nag/2016 I.T.A,Nos-256 to 260/Nag/2016 amounts deposited with late Shri Gotulaljee Bhangdiya. The various persons who had submitted the affidavits have not been cross examined subsequent to affidavits submitted nor any material or evidence on record has been brought to dislodge the averment made in the affidavits. Therefore; the AR pleads that the contents of the affidavits filed by sub-contractors have gone un-rebutted and have to be taken & true and correct In this regard the appellant has relied 0n the decision of Hon ble Apex Court in the case of Mehta Parekh reported at 30 ITR 181 (SC) wherein it has been held that: "No further documents or vouchers in relation to those entries were called for;, nor was the presence Of the depanents of the three afdavits considered necessary by either party. The appellants took it that the affidavits of these parties were enough ad neither the AAC; nor the ITO who was present at the hearing of the appeal before the AAC; considered it necessary to call for them in order to cross-examine them with reference to the statements made by them in their affidavits. Under these Lircumstances i was not Open t the Revewue_ tz challenge the correctness Of the cash entries Qr the statements madebY_those_deponents _in their affdavits 11.16 The A.O. has observed that the various sub contractors in the case of assessee are name lenders and bogus. The A.O. has listed the names of such sub contractors at para 9.1 of the assessment order; In this regard, it is seen that-the aforesaid sub contractors are also assessed by the ACIT; Central Circle-2 (1); Nagpur who is also the A.O. of assessee group; In cases of such sub-contractors notices under section 153C Of IT Act 1961 were issued and returns were submitted by such sub contractors pursuance to receipt of notice under section 153C of IT Act 1961, The assessments have been framed under section 153C of [T Act 1961 by the same A.O, wherein the income returned in respect of business income shown arising to Such sub-contractors out of receipt received from the assessee group have been accepted, Thus; the A.0. having accepted the business receipts in the hands of sub-contractors for determining the income in the cases Of sub-contractors could not have concluded that the payments made by assessee group to such sub contractors are bogus. {z46 1713 I.T,A.Nos.66 to 70/Nag/2016 I.T,A.Nos-256to 260/Nag_ 2016 26 11.17 The A.O. in the assessment order has observed that spme of the Sub-contractors are working a5 emplovees like driversisupervisors Of the assessee group. There i5 no prohibition for working &s employee ad also operating a5 Sub- contractor; The AR In this regard has submitted that the assessee in order to encourage his employees has provided employees to be Sub-contractor in order to make more personal gain by such employees In view Of above there is nothing which can be held adversely in respect to such observation. 11.18 As regards to the addition of Rs: 54.40 crores made by the AO on the basis of the depositions of the sub-contractors, the AR has contended that an opportunity Of cross examination Of such sub-contractors has not been given to the appellant which is in violation to the principles Of natural justice The AR of the appellant in this regard has placed reliance on the decision of Hon'ble Supreme Court in the case of MIs Andaman Timber Industries VS Commissioner of Central Excise; Kolkata (Civil Appeal No. 4228 of 2006). The Honble Apex Court in this case has held 35 under: "According to US, not allowing the assessee to cross examine the witness by the Adjudicating Authority though the statements of those witness were made the basis Of the impugned order is a serious faw which makes the order nullity inasmuch as it amounted to violation: 'df principles of natural justice because Of which the assessed was adversely affected. In view Of the above; We are of the opinion that If the' testimony of these two witness is discredited, there was no material with the Department on the basis of which it could justify its action as the statement of the aforesaid two witness was the only basis of issuing the Show Cause Notice We; thus; set aside the Impugned order as passed by the Tribunal and allow this appeal" The ratio Iaid down by the Hon'ble Apex Court is mutatis mutandi applicable to the facts and circumstances of the present case Of the appellant group. Oni 1314 {3+-At I.T.A_Nos.66 to 70/Nag/2016 I.T.A.Nos.256 to 260/Nag/2016 12.0 The AR pf the appellant has submitted that in the assessment framed various additions made are based On the seized documents from B-| to B-65. It is further submitted that notings On seized documents were explained by appellant by placing legal evidences 0n record. The AR thus contended that it Is settled position Of law that in the absence of corroborative evidence 0n record no adverse view can be taken in respect of notings found in the seized documents; According to the AR; in the case Of assessee for notings made, no adverse corrobrative evidence was found in the course of search action or has been brought on record by the Id. AO during the course of assessment proceedings at the time of framing of assessment: The AR therefore; pleaded that in the absence of any adverse cotroborative evidence On record for notings On seized documents , addition made by AO on the basis Of such notings are unjustified and unsustainable In support of his contention the AR has relied on the following judicial decisions; 1) (1978)115 ITR 524 (SC) Brij Bhushan Lal Parduman Kumar vs. CIT In this case the Hon'ble Apex Court has held as under: "It is true that, ordinarily, when a works contract is put through Or completed by & contractor the income Or profits derived :by the contractor from such contract is determined on the value of the contract as 3 whole and cannot be determined by considering several items that go to form such value Of the contract but In our view where certain storestmaterial is 'supplied at fixed rates by the Department to the contractor solely far being used or fixed or incorporated in the works undertaken On terms and conditions mentioned above; the real total value of the entire contract would be the value minus the cost of such storesfmaterial 50 supplied. Therefore, since no element of profit was involved in the turn Over represented by the cost Of storesfmaterial supplied by the MES to the assessee firms, the income Or profits derived by the assessee firms from Such contracts will have to be determined on the basis of the value of the contracts represented by the cash payments received by the assessee-firms from the M.ES Department exclusive Of the cost PM Azt 1315 I.T.A.Nos,66 to 70/Nag/2o16 I.T.A.Nos.256 to 260/Nag/2016 #28 Of the material/stores received for being used, fixed Qr incorporated in the works undertaken by them: 2) (1973) 92 ITR 90 (Mad ) CIT vs. K.S: Guruswami Gounder & K.S. Krishnaraju The Hon 'ble Madras High Court has held "if the assessee gave its tender On the definite understanding that the Department concerned is to supply the required materials for the construction of the buildings, the rates quoted by him would have been adjusted on that basis: Therefore; there i5 no question Of the asse5s2e purchasing the materials required for the buiidings from outside and putting itself to a disadvantage Admittedly, the materials supplied by the Departments had been used in the construction of the buikdings ad the assessee did not; In fact; earn any profit in relation thereto: We are not; therefore; in 3 position to Say that the turnover represented by the cost of the material supplied, in ay manner, contributed to the profit of the assessee 3) AIR 1998 (SC) 1406 Central Bureau of Investigation vs: V.C Shukla & Ors; 39, A conspectus of the above decisions makes it evident that even correct and authentic entries in books of account cannot without independent evidence of their trustworthiness; fix 9 liability upon a person; Keeping in view the above principles; even if we proceed on the assumption that the entries made in MR 71/91 are correct ad the entries in the other books and loose sheets (which We have already found to be not admissible in evidence under Section 34) are admissible under section 9 of the Act to support an inference about the formers correctness still those entries Would not be sufficient to charge Shri Advani ad Shri Shukla with the accusations leveled against them for there is not an iota of independent evidence in support therepf In that view of the matter we need not discuss, delve into Or decide upon the contention raised by Mr:. Altaf Ahmed in this regard Suffice it to say that the statements Of the four witnesses; who have admitted receipts of the payments as shown against them in MR 71/91, can at best be proof of reliability of the entries 50 far they are concerned and no others; O2m 1316 I.T,A.Nos.66 to 70/Mag/2016 I,T.A.Nos,256 to 260/Nag/2O16 29 In other words; the statements Of the above witnesses cannot be independent evidence under Section 34 as against the above two respondents; So Far a5 Shri Advani i5 concerned Section 34 would not come in aid of the prosecution for another reason also: (1965) 57 ITR 532(SC) Parimisetti Seetharamamma VS: CIT The Hon'ble Apex Court has held as under: "By 5s. 3 and 4 the Act imposes a general liability to tax upon all Income But the Act does not provide that whatever is received by & person must be regarded a5 Income liable to tax Ial cases inwhicha receipt_js_souciht t be_taxed 35 income the burden lies_upon the Department to_prove_that i Js within the taxinQ _prvision_ Where_however a receipt js_of the_pature_of income the_burden ot_providing that tIs_not_taxable_because j falls within 2 exenption_proved_by_ the act lies VoQl the assesseg 5} (2007) 294 ITR 49 (SC) CIT vs, PV: Kalyanasundaram In this case the Hon 'ble Supreme Court has observed as under: "The respondent assessee vide & registered sale deed d. 27h Oct;, 1998 purchased certain land at Brindavan Road, Fairlands, Salem for & sum Of Rs.4.10 lakhs. During a search of the office and residential premises of Polimer Net Work certain notes On loose sheets allegedly in the hands of the respondent were found and seized by the Department In his statement recorded on &h Dec, 1998, the assessee submitted that he could not remember as to why the notings had been made: The statement was further confirmed by another statement on 11th Dec;, 1998. The Department also recorded the statement Of the vendor Rajarathinam 0n &h Dec, 1998 which too was confirmed on 1Ith Dec, 1998 in which he admitted that he had in fact received & total consideration of Rs.34.35 lakhs and that the sum of Rs.4.10 lakhs reflected in the sale deed had been received by him by way Of & demand draft &d the balance in cash. Rajarathinam however retracted from his statement on &h Jan , 1999 and filed 4za4lt Izi7 I.T.A.Nos.66 to 70/Nag/2016 I.T.A.Nos.256 to 260/Nag/z016 an affidavit deposing that the sale price was Rs.4,10 lakhs only and that his statements earlier given to the authorities were incorrect In 3 subsequent statement recorded Qn 20* Nova, 2000 Rajarathinam again reverted to his earlier partion and deposed that the sale price was Rs.34.85 lakhs. The CIT accordingly deleted the addition made An appeal was thereafter preferred by the Revenue against the order of the CIT befare the Tribunal The Tribunal in Its order dt; 6h July, 200S held that the notings on the loose pieces Of paper on the basis of which the initial suspicion with regard to the undervaluation had been raised were vague and could not be relied upon as it appeared that the total area with respect to the sale deeds &d that reflected in the loose sheet was discrepant "When the assesse did not give any explanation to the notings found and at the same time the Revenue Is able to corroborate the same with the statement Of the seller for the purpose Of determination of actual sale value , WOuld the lower authority be justified in Interfering with the same? Be that a5 it may; we are of the opinion that the three questions reproduced above can, In no way, be called substantial questions of Iaw. The fact 85 to the actual sale price of the property; the implication of the contradictory statements made by Rajarathinam Or whether reliance could be placed &n the loose sheets recovered in the course of the raid are all questions of fact We therefore find no infirmity in the order of the High Court Accordingly, we dismiss the appeal 8 6) (1999} 237 ITR 570 (SC) CIT vs: Smt: P,K. Noorjahan "The Tribunal however, held that even though the explanation about the nature ad sources of the purchase money was not satisfactory but in the facts and circumstances Of the case it was not possible for the assessee to earn the amount invested in the properties and that by no stretch of Imagination could be assessee be credited with having earned this income in the course Of the assessment vear Or was even in a position to earn it for 0 decade Or more: The Tribunal took the view that although the explanation of the ass2s522 was liable to be Jmi 1318 /34 I.TA Nos.66 to 70/Nag/2016 I.T.A.Nas.256 to 260/Nag/2016 31 rejected; 5. 69 Of the Act conferred only & discretion on the ITO to deal with the investment as income Of the assessee ad that it did not make it mandatory On his part to deal with the investment a5 income of the assessee a5 soon a5 the latter's explanation happened to be rejected This clearly indicates that the intention Qf Parliament in enacting 5. 69 was to confer & discretion on the ITO in the matter of treating the source of investment which has not been (satistactorily explained by the assessee &s the income of the assessee and the ITO is not obliged to treat such source of investment as income in every case where the explanation offered by the assessee is found to be not satisfactary; In the instant case; the Tribunal has held that the discretion had not been properly exercised by the ITO ad the AAC in taking into account the circumstances in which the assessee was placed ad the Tribunal has found that the sources of investments could not be treated as income of the assessee. The High Court has agreed with the said view of the Tribunal We &ls0 do not find any error in the said finding recorded by the Tribunal There i5 thus no merit in these appeals ad the same are accordingly dismissed. No order a5 to costs. 7) Bombay High Court order In ITA No.1224 of 2011 in the case Of MJs: Supreme Industries Ltd. "A search action was conducted On the respondent assessee and its directors; During the course Of search; the officers Of the document which reads a5 under: Payment mode Cheque Cash 65.00 3300 98.00 Rate per sq. yard Per Sq: Int Rate offered 2,019 2,414 1,500 pcrsq mt: = 61,50,000 1,600 per sq- mt; The Hon ble High Court observed a5 under; izt (319 I.T_A Nos.66 to 70/Nag/2016 I.T.A.Nos.256 to 260/Nag_ 2016 32 "The entries found in the seized document according to the Tribunal cannot be relied upon in the absence of supporting documents; The revenue has not brought On record any evidence to show that the transaction for the purchase of plot was for Rs.98 lacs including cash payment of Rs.33 lacs Thus, the appeal of the respondent assessee was allowed. We note that the Tribunal has allowed the appeal on & finding & fact This finding by the Tribunal is reached taking into account the various evidences produced by the assessee to conclude that an amount Of Rs.33 {acs had in fact never changed hands. Consequently, section 69 of the Act would be Inapplicable: 8} (20081307 ITR 137(Guj:) CIT vS- Maulikkumar K Shah The court has held a5 under: "The assessee has booked 35 shops as on the date Of search, on which the Department has charged 'on money' In the asst yr; 1995-96. In his statement recarded under $, 132(4), $ denied to have charged any 'on-money: The notings On the seized diary found from the premises of $, is the only material on the basis of which the AO has made the impugned additions The AQ has not brought any corroborative material on record to prove that scch; sales were made ad 'on-money' was received by the assessee outside the books Of account The AO has not examined any purchaser to wham the sales of shops were effected Qnus heavily Iay on the Revenue to prove with corroborative evidence. that the entries in the seized diary actually represent the sales made by the assessee Such onus has not been discharged by the Revenue: Mere entries in the seized material are not sufficient to prove that the assessee has indulged In such 2 transaction; It i5 well-settled that If certain documents were found from the possession of the assessee during the course of search operation, burden lies on the assessee to explain the nature pf transactions recorded in the said seized material Considering the facts and circumstances of the case in its entirety, we are of the considered view that the addition 35 made by the AO. Being based On mere presumptions and assumptions ad without any corroborative evidence, cannot be sustained and the said additions have rightly been deleted by the Oni 132p +34 I.T.A,Nos.66 to 70/Nag/2016 I.T.A.No5.256 to 260/Nag/2016 33 CIT (A} in ali the years under consideration. The Revenue's appeals; therefore fail 9) (2007) 293 ITR 43 (Del ) CIT vs. S.M: Aggarwal In this case the court has held: "Statement made by assessee's daughter cannot be said to be relevant or admissible evidence against the assessee; since the assessee was not given any opportunity to cross examine her: "It I5 weli settled that the only person competent to give evidence 0n the truthfulness Of the contents of the document is the writer therepf So; unless and until the contents of the document are proved against & person, the possession of the document or handwriting of that person On such document by itself cannot prove the contents of the document These are the findings of fact recorded by both the authorities i.e CIT(A) and the Tribunal "The explanation tendered by the assessee that the account belongs to his daughter Smt: Sarla Gupta was categorically denied by her ad in view af her specific denial, there {S no justification to hold it otherwise: "If the evidence collected against 3 person has not been confronted against him then it cannot be utilized against him: ' In the present case; the AO, has taken into account the statement: of Smt; Sarla Gupta and has utilized the same against the assessee but the fact remains that this statement was recorded behind the back of the assessee and no opportunity was given to him to cross-examine her: "We have ourselves examined the contents af the document and are unable t0 draw any dear and positive conclusion on the basis Of figures noted on it; The letter 'H.S. T2" and 'D-Shop' cannot be explained and no material has been collected to explain the same Likewise; the figures too are totally unexplained ad on the basis of notings and jottings, it cannot be said that these are the transactions carried out by the assessee for advancing money or for taking money: Thus, In our opinion, this is a dumb document 438 1321 I.T.A-Nos.66 to 70/Nag/2016 I.T.A.Nos.256 to 260/Nag/2016 34 10) (2008} 266 ITR 619 (Del) CIT vs: Girish Chaudhary "The company and its directors were searched on 18.01.2000 and a document marked a5 Annex. A-37 was found and seized The Said document contained the following entries: Annexure A-37 "Cash RB- Ch: (Page 13) 31.50 9,50 41.00 16.50 57.50 31.50 16.50 48.00" The Hon'ble Delhi High Court following the decision of Aper Court in CBI Vs: VC Shukta (1998) 3SCC 410 has held "Similarly, the document Annex: A-37 recovered during the course Of search in the present cse is a dumb document and lead US nowhere Thus, the Tribunal rightly deleted the addition Of Rs,48 Iakhs made by the AO on account of undisclosed income on the basis of seized material 11) (2014) 39 CCH 034 (Hyd)(Trib:) Deputy CIT VS. K Babu Rao The Hon'ble ITAT; Hyderabad Bench has held 35 under; "Guess work not possible in case of search assessment framed ufs 14303) or ujs 153'A, without any proper material AO should have basis for assuming that expenditure incurred by assessee is out of undisclosed income Unsubstantiated loose sheets cannot be considered a5 conclusive evidence to make any addition towards undisclosed income In Instant case additions were made On} basis Of entries recorded in two note books seized Entries in note book were unsubstantiated --On basis 0f same AO concluded that figures mentioned therein are to be read by adding 3 zeros ad assessed undisclosed income Other than Ioose paper; AO has not brought On record any corroborative material or evidence CITIA) rightly concluded Omi 1z23_+34 IT,A_Nos.66 to 70/ Nag/2016 IT,A,Nos.256 to 260/ Nag; {2016 that it cannot be acted upon and deleted addition Impugned order upheld Revenue's appeal dismissed "He observed that in the statement recorded on the date of search; assessee admitted that the seized books contain details Of day to day expenditure In the statement recorded ujs 131 On 23/7/2008 , the assessee further admitted that the seized books contain receipts ad payments party related to him and partty related to others and the entries were written In coded form. He also admitted that these books were written by his managers and his two wives Smt Sridevi and Smt Rani. "Tax has to be collected on real income but not 0n hypothetical income Unless those entries are independently corroborated with contemporaneous record, no adverse view can be taken by the Assessing Authority: No such direct independent evidences have been brought to demolish the contention of the assessee. As contended by the assessee; no assets have been unearthed during search, wich is ultimate weapon of the Dept, for making such addition on the basis of some mathematical calculation. "As stated earlier , these documents are prepared and maintained by managers; there are bound to be mistakes which cannot fasten on the assessee to pay taxes on unearned income During search and seizure proceedings, cash Rs.4 lakhs a the two diaries were recovered but no unaccounted assets found AO did not mention any Of such unaccounted assets found during search: In this background additions based on some entri2s in the diaries by affixing three zeroes for all transactions is totally unjustified There should be some reasonable matching between the income and the assets or expenditure; that nexus Is clearly lacking on the facts as brought on record. 3 "In the present case; the seized material (two note books) marked as KBRJAJOZ and KBRJA04 wherein certain entries are found recording various transactions pertaining to the assessee These entries In the note book are unsubstantiated and on that basis the AO reached to the conclusian that the figures mentioned therein are to be read by adding 3 zeros ad thereby he came to condude that there is undisclosed income in these 6 assessment years: In our opinion the document recovered during the course of search Was a dumb documentand led I.T.A.Nos.66 to 70/Nag/2016 IT.A.Nos.256 to 260/Nag/2016 h332 1323 36 nowhere: The CITIA) rightly came to the conclusion that it cannot be acted upon and deleted the addition. "Other than the loose paper; the AO has not brought on record corroborative material Or evidence to show that the any inference made by him is correct The CITA) after taking the totality of the circumstances into consideration came to the conciusion that the addition made by the AO is not justified and the argument put forth by the assessee i5 supported by documentary evidence This was not 2 Case where relevant evidence had been Ignored by the CITIA) and their relevant evidence has been taken into consideration The only test that waS required to be applied was whether on the facts found ad the state of evidence On record, the conclusion arrived at by the CITIA) was one which could be arrived by & reasonable person properly informed in Iaw: Applying this test; it could not be said that the decision recorded by te CIT(A) one which could not have been arrived at by a reasonable person properly informed in Iaw considering the state of evidence 0n record, Hence; In Qur considered opinion the CITIA) has reached a correct conclusion in deleting the addition made by the AO on the basis of loose sheets; 12) (2005) 92 TT] (Ctk) 464 Addk CIT vs. Prasant Ahluwalia 0 The Honble ITAT Cuttack Bench has held "The AO stated that these notings were in the handwriting of the assessee and therefore; he has to explain why the total of which comes to Rs; 7,55,000 , were added in the income Of the assess2e. It was submitted by the assessee during the course of search itself that this is estimation Of expenditure to be incurred for forthcoming period, "No corroborative material has been brought on record by the AO for rejecting the assessee's contention that jotting On the piece of paper was an estimate ad not actually expended As per our considered view additions based on chit papers and presumption of AQ could not be sustained in the absence of any Mozr I34 I.TANos-66 tq 70/Nag/2016 ITA.Nos,256 to 260/Nag/2016 37 corroborative material or evidence brought 0n recard, supporting it "As no corroborative material has been brought on record by the Department to reject the assessee's contention, we do not find ay reason On interfere In the order of the CITIA) for deleting the impugned addition 13) (2007} 106 TTJ (Ranchi) 422 ACIT vs. Ashok Kumar Vig Held: "The CIT(A) has taken 3 clear-cut view that the AO did not verit these SO-called balances with the parties whose names were found mentioned: accounts give no indication regarding Movement of amount The parties show drastic reduction in the balances but how the payments were accounted for i5 not forthcoming from these 'entries: The Authorised Representative has invited attention to the fact that the AO did make enquiry, which the assessee has not disputed. However, the AO has not brought on record the result of Such an enquiry. The only plausible conclusion under these circumstances, wouid be that the findings Of such a exercise was favourable to the assessee Coming to the applicability of provisions ofs 132(44), the assessee has explained the circumstances under which his employee maintained these documents in the premises of MDSS Thus; the ownership i5 not disputed: However; there i5 no presumption about the earning of income The assessment is made under Chapter XIV-B. The AO cannot make addition on the basis of incomplete entries: The onus rests on the Revenue to establish that the assessee was in receipt of money then the Onus would automatically be shifted to the a5sessee to prove that the money has been disclosed in the account &r the same Is not liable to tax In the present case in hand, the AQ has not been able to demonstrate with adequate evidence that the assessee received the amounts in two years a5 alleged These entrizs as recorded in 'PKC-60 do not clearly reveal that the assessee has earned income The assessment Of undisclosed income is under Chapter XIV-B and there i5 no scope Of assumption or presumption while making assessment under this 4z33 1335 I.T_A.Nos-66 t0 70/Nag/2016 I.T_A.Nos.256 to 260/Nag/2016 38 chapter They are dumb documents On which reliance cannot be placed, unless they are corroborated with other evidences: There i5 no infirmity in the order of CIT(A) in deleting the additions Rama Traders VS. ITO (1988) 32 TTJ (Pat) (TM) 483 (1988) 25 ITD 599 (Pat)(TM) and Kollipara Subba Rao VS:ITO (1990) 32 ITD 668 (Hyd ) distinguished 14} (2004) 91 T} (Del:) 938 N.K; Malhan vs: Deputy CIT Held: 'The document found &d seized might raise strong suspicion but it could not be held 35 5 conclusive evidence without bringing some corroborative material on record. Heavy onus Iay upon the Revenue to prove that the document gives rise to undisctosed investment by the assessee "As regards interest, from mere jottings or calculations it cannot be said that there was any liability incurred by the assessee a5 he is also not found to have paid the amount from his resources nor utilized the amount for his individual benefits. The Revenue did not examine these parties though the complete Identity and particulars thereof were available before them Proof of payment has also not been found In case the cakculations were made fok interest; they were merely the cost estimates but cannot be said a5 & payment in reality or a liability incurred by the assessee In any event the burden was On the Revenue to show that the: documents represented undisclosed income Of the as5essg& without bringing any corrobaratary evidence by the Revenue; this burden cannot be held to have been discharged Under such peculiar circumstances ad the facts a5 emerging from record, the entries Of Rs,1,65,000 could not have been treated 35 undisclosed income of the assessee for the block period The addition so made is, therefore; directed to be deleted" "The document found a seized might raise strong suspicion; but it could not be held a5 3 conclusive evidence without bringing some carrobarative material on record. The document contained only the rough calculations ad was silent about ay investment On the basis of such & dumb document; it cannot be said that there were investments made in fact by the assessee Heavy onus lay upon the Revenue to prove that the document APPe Moja IjH I.T.A.Nos.66 to 7O/Nagf2016 I.T,A.Nos.256 to 260/Nag/2016 37 corroborative material or evidence brought on record, supporting i "As no corroborative material has been brought 0n record by the Department to reject the assessee's contention, we do not find any reason On interfere In the order Of the CIT(A) for deleting the impugned addition 13) (2007) 106 TT] (Ranchi) 422 ACIT vs. Ashok Kumar Vig Held: "The CIT(A) has taken & clear-cut view that the AO did not verify these 50-called balances with the parties whose names were found mentioned accounts give no indication regarding movement of amount: The parties show drastic reduction in the balances but how the payments were accounted for i5 not forthcoming from these entries The Authorised Representative has invited attention to the fact that the AO did make enquiry, which the assessee has not disputed_ However; the AO has not brought on record the result of such an enquiry. The only plausible conclusion , under these circumstances, would be that the findings of such a exercise was favourable to the asses582, Coming to the applicability of provisions ofs. 132(44}, the assessee has explained the circumstances under which his employee maintained these documents in the premises of MDSS Thus; the ownership i5 not disputed However; there {5 no presumption about the earning of income The assessment is made under Chapter XIV-B. The AO cannot make addition on the basis of incomplete entries: The onus rests on the Revenue to establish that the assessee was in receipt of money then the anus would automatically be shifted to the assessee to prove that the money has been disclosed in the account r the same Is not liable to tax In the present case in hand, the AO has not been able to demonstrate with adequate evidence that the assessee received the amounts in two years as alleged: These entries as recorded in 'PKC-60 do not clearly reveal that the assessee has earned income: The assessment of undisclosed income is under Chapter XIV-B and there 15 no scope of assumption or presumption while making assessment under this M 1326 H33 = I.T,A.Nos.66 to 70/Nag/2016 I.T.A Nos.256 to 260/Nag/2016 '39 gives rise to undisclosed investment by the assessee; This onus has not been discharged Accordingly no addition of undisciosed income could be made on the basis Of such & document" 15. (2004) 89 TTJ (Cal) 917 JCIT vs: West Bengal Trading Agency Held: "No positive material, direct or circumstantial to establish that amount was received by assessee Addition made on the basis of suspicion was rightly deleted by CIT(A)" "It was necessary for the AO to gather material either direct or circumstantial to establish that the intention expressed in the diary by K was actually implemented and that the assessee had received the money from K The very receipt of money from K is doubtful ad, therefore; the tax liability cannot be fastened on the assessee merely on the basis of suspicion The CIT(A) was justified in deleting the addition 16) (2008) 10 DTR (Del ) (Trib-) 507 Sonal Constructions VS: Deputy CIT Held: "Presumption under 5, 132(4) cannot be used in the assessment proceedings to make an assessment of income: One fails to understand a5 to why the AO did not think fit to examine V in the course Of assessment proceedings. So also, non-examination of S by the AO in the course Of assessment proceedings was fatal to the case of the Revenue The seized documents were alone not sufficient to draw any definite conclusion regarding the existence Of undisclosed income The corroboration could have come in the form Of examination of V and 5 The purchasers of the property from the assessee could have been examined t0 find out jf they had paid consideration over and above what has been recorded by the assessee in its books of account; The additions made cannot be sustained in law Shivani Properties (P) Ltd Izt 1327 I,T,A.No5,66 to 70/Nag/2016 I.T.A.Nos.256 to 260/Nagf2016 40 VS; Dy. CIT (ITA Nos 1957/Del/1999 and 4100/Del/2001, dt Z9h Dec;, 2006) relied on; "It is observed that the writing made in the loose papers were treated by the A.O. 35 the actual investment made by the assessee ad the actual receipts of the sale Of properties We find that the said documents Annex. AJ Pp. 2 and 29 are loose papers ad not any bopks of account Further in the said document date-wise break-Up of the alleged payments made Or the alleged sales proceeds received are not recorded From the said documents it cannot be said that the figures stated there In were the actual investment made by the assessee ad actual sale proceeds received by the assessc2. No corroborative eviderce of the writing found to be made in the loose papers were found during the course of search. It is no doubt true that the seized document on which the impugned addition was made by the AQ namely Annex. Al pp. 21 and 29 did give out certain figures regarding the four projects that the assessee had undertaken in the course of his business "The question that would fall for consideration is as to whether this correlation alone was sufnicient to make the impugned addition: In this connection, we have to first notice that the document in question was seized from the residential premises of one of the partners of the assessee firm, At the time of search the statement or the partner was recorded, He disowned anys knowledge about the seized documents" The Hon'ble Supreme Court in a recent decision in the case of PR; Metrani vS. CIT (2006) 206 CTR (SC) 290 ; (2006) 287 ITR 209 (SC) has laid down that presumption under 5. 132(4) cannot be used in the assessment proceedings to make an assessment of income 6 "We are of the view that the seized document Al pp. 21 ad 29 were alone not sufficient to draw any definite conclusion regarding the existence of undisclosed income: It was therefore not possible to draw any inference on the basis of this document without proper corroboration: As already stated the corroboration could have come in the form Of examination Of Mc; VK Narang ad Mr: S.S Sodhi. The property could have been got valued by the DVO to find out the real investment in this property. The purchasers of the property from the a5sessee could have been examined to find Out if they had paid 8 8 Jmi 13a8 1335 IT.A.Nos.86 tq 70/Nag/2016 I.T.A.Nos.256 to 260/Nag/2016 41 consideration over and above what has been recorded bv the assessee in its books Of account "It is also pertinent to note that there waS no attempt made by the AO even to make any enquiry with the concerned flat purchasers from whom the 0n-money was alleged to be received by the assessee On the basis Of the contents of the relevant seized documents, The allegation of the AO about the receipt of on-money from the flat purchasers thus was based On mere surmises and conjectures and In the absence of ay evidence to corroborate the same, the addition made by him presuming the receipt Of on-maney; In our opinion; was not justified In that view of the mater; we set aside the impugned arder of the learned CIT(A) confirming the said addition and direct the AO to delete the same; 17) (1997} 59 TTJ (Mumbai) 574 ACIT vs. Shailesh $, Shah Held: "As a result of search at assessee's premises on 26th August; 1987 certain loose papers were found and seized ad one of those loose papers which has been marked 35 page No; 44 which has been responsible for creating the controversy under appeal before u5 has the following details: (Details are a5 per the Entries repeated on page No. 3 & 4 of the order )" 0 "We are Of the opinion that the AO has not Invoked ay 0f the deeming provisions of ss. 69 t0 69D &d, therefore; it is dear that these figures have been considered as assessee's income under the substantive provision of the IT Act; Under the substantive provision of IT Act; it Is now settled Iaw that every receipt is not necessarily or cannot necessarily be income in the hands %f the recipient ad, therefore , the question whether any particular receipt is income or not depends on the nature Of the receipt and true scope &s well as the fact of the relevant taxing provisions settled propositian, it follows that Revenue can tax only those receipts; which; first have been proved to be income in the hands of the recipients and secondly, the same have to be proved 35 non-exempt from tax; We are; therefore; of the 726= 1329 I,T,A-No5.66 to 70/Nag/2016 I.T,A.Nos.256 to 260/Nag/2016 3ci4z opinion that it is Revenue'$ onus, before assessing any receipt a5 taxable income; to proved that the receipt In the hands Of the recipient is Income ad this can be proved or established only on the basis of some material r evidence This view finds support from the decision Of the Hon 'ble Allahabad High Court in the case of Lachand Gopaldas Vs. CIT "In view of the above discussions, facts and circumstances of the case a5 well 35 the settled principles of Iaw, we are f the opinion that the conclusion arrived at by the AO was based purely on Suspicions ad the CIT(A) was justified in deleting the additions having been made only on suspicions. The Order Of the CIT(A) i5 upheld ad the revenue's appeal i5 dismissed As regards to Departmental Representative plea relating to consideration of assessees explanation by the CIT(A) submitted before him, without giving opportunity to AO, we have found that the CIT(A) has not based his decision on that explanation, rather had accepted the assessee's plea made before the AO to the effect that the figures Or Ioose paper No.44 were rough working of the firm. This plea 15, therefore; rejected 18) (2008) 5 DTR (Jab) (Trib) 202 ACIT vs: Satyapal Wassan Je Holble_Tibunal basheld 25_ under: "Our view in this regard is supported by the decision of Hon ble Supreme Court in Govind Saran Ganga Saran VS . CST (1985) 155 ITR 144 (SC) wherein i was held that for the purpose of charging to tax; there should be four components to be satisfied, For the sake of convenience; we refer to the relevant headnotes form that decision; €L 0 Jmo5n "The component which enter into the concept of a tax are well known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the leVy; the second is & clear indication of the person on whom the levy is imposed and who is obliged to pay the tax, the third Is the rate at which the tax Is imposed and the fourth is the measure Or value On which the rate will be applied for computing the tax liabilitya If those components are not clearly and definitely ascertainable; it is difficult to say that the levy exists in point of Iaw Any uncertainty Or vagueness in the legislation scheme 1330 1337 I.T.A,No5,66 to 70fNag/2016 IT.A.Nos.256 ta 260/Nag/2016 43 defining any Of those components of the lewy will be fatal to its validity. The first component shows that it is necessary to find out the nature Of transaction which i5 the source Of generating income It has to be clearly spelt Out a5 to whether a particular transaction is of income yielding nature as per IT Iaw. Merely because & document is recovered from the body of &a person does not automatically lead to the inference that i belonged to him. It i5 only for certain purposes that presumption under 5. 132(44) has been enacted and not for all purposes including the assessment Further, this presumption I5 not conclusive It is rebuttable. "What amount of evidence one requires to rebut the evidence depends upon facts Of each case: There is no rigid rule in this behalf Sometimes; mere statement of the assessee may be enough Hon'ble Rajasthan High Court In Addi: CIT VS; Thahrayamal Balchand 1977 CTR (Raj ) 219 (1980) 124 ITR 111 (Raj) observed "a mere statement of the assessee may be enough in some cases It does not raise & question of Iaw. 'The document andfor follow up investigation must establish the period of transaction before charge of income tax could be levied during the current assessment year" "The A.O. has failed to properly decode the figures mentioned in the document as to whether they are in thousands &r in ten thousands or in lakhs and what is the unit of these transactions The document does not tell anything about this, It could have been done only by way of investigation. It has not been dane Therefare; one cannot infer merely from the face of the document a5 to what is the total of those transactions and whether they are in rupees or In kilograms Or something else. In the absence Of such proper decoding and clarification of number/quantity involved, no charge af income tax can be levied" "TThe above discussion also leads U5 to infer that a charge &n the basis of document can be levied only when the document is a speaking one 1322 1331 I,T,A.Nos.66 to 70/Nag/2016 I.T.A.Nos.256 to 260/Nag/2016 4 "The speaking from the document should be loud, clear and unambiguous in respect of all the four components a5 described above; IF it Is not 50, then document is only a dumb document No charge can be levied on the basis of dumb document" "It waS held in Neena Syal's case (supra) that where a document found during the course of search is open to more than One possibility of interpretation &d does not prove conclusively that any premium was given by the assessee or received by the seller then no addition could be made in respect of premium paid On purchase of plot `From this decision, it i5 clear that the document must unmistakably reflect the transaction without aving any second Interpretation "The crux Of these decisions Is that & document found during the Course af search must be 9 speaking one and without any second interpretation must reflect ali the details about the transaction Of the assessee in the relevant assessment year; Any gap in various components as mentioned in 5, 4 of the IT Act must be filled up by the AO through investigations and correlations with other material found either during the course of the search Or on investigation. As 3 result; we hold that document No.7 is 2 non-speaking document" 13.0 On perusal af the assessment orders of various entities & Bhangdiya group; it is seen that the net profit adopted' by the learned AO is quite at variance In each of the group entities; besides being abnormally high. The following chart depicts the net profit adopted by the AO In various group concerns for the purpose of taxable profits: ELL 70 6 Income from Contract Business Assessed By AQin % Particular AY AY AY AY AY AY AY 2009-10 2010- 2011- 2012-13 11 12 18.6096 27.469 49.509 9,3496 11,049 21.79dp 33.0596 27.7396 2006-07 2Q07-08 2008-09 Ms. M G Bhangdiya MKS Constro Venture P. Ltd, Ms Mahendra Construction Mfs Mahendra Const; & M.G. Bhangdiva JV MJs K.M, Bhangdiya MKS Acme Build P Ltd Ms. MG Bhangdiya and Hitbhav Engg JV Ms. M G Bhangdiya and SS PATTL JV 11,790 41.2796 35,6090 10.789 43,1390 25.4494 49.5390 73,4406 17.6900 41,810 16,0390 26.269 15.229 13.949 10.289 11.9790 23.399 26,7605 66.539 11.989 27,839 0,00% 54.8290 129.9200 13.1890 3 Jmi 132 6339 I.T,A-Nos.66 to 70/Nag/zo16 I.T,A.Nos.256 to 260 /Nag/2016 45 MYS K M Bhangdiya JV Mitcon Infra Projert P Ltd Consoiidated for AII Entities 25,289 39.529 10,0706 10,009 10,0Q96 18,529 34.250 49,975 44,590p 12,3690 47,0106 74,369 14.0 It is quite manifest from the above that the income assessed by the Id. AO for the purpose of taxation in respect of various group concerns; engaged 177 the Same business 75 contractors; i5 quite at variance. The income assessed by AO as percentage receipts for various years varies from 9.349 to 129.929 , 15.0 In view of the huge variance in the income assessed 25 percentage to receipts by the AO and various infirmities pointed out by the AR Of the appellant in the order of the AO as discussed in the foregoing para No: 11 Of this order; the AR has vehemently objected to the income assessed by the AQ in the hands af various entities of the group; including the present appellant The AR thus has contended that incame assessed by the AO in the assessment order is merely an estimation which Is quite at the higher side looking to the facts and circumstances of the case The AR of the appellant in this regard has also relied on the decision of the Hon'ble ITAT; Nagpur Bench, Nagpur in the case Of the appellant &d various group entities in ITA No: 268, 269 8 285/Nag{2012 dated 03.04.2013. The AR of the appellant in this regard, has submitted that a survey action was conducted an 17.02.2009 in the Bhangdiya group of cases, wherein the Ssimilar situation a5 payments to Sub-contractors was disputed and doubted by the AQ. The survey action comprises AY 2006- 07 to AY 2008-09 which are also forming part of the block periods for the search action conducted on the assessee group on 19,07.2011. The AR has pleaded that the Hon'ble ITAT after having considered the similar activity Of business and deficiencies in sub-contract payments found during the survey action conducted 0n 17.02.2009 has decided the appeals for AY 2006-07 to 2008-09. The Hon'ble ITAT Nagpur Bench Nagpur after considering the impounded material has directed the AO to adopt the net profit @ 12% 2 against net profit adopted by AO 149. Therefore; the AR Of the appellant vehemently contended that the nature of defects found in the course Qf search action are similar to that Of the evidences impounded in the course Of survey action, therefore; the net profit in any case should not exceed @ 1296 a5 adjudicated by the Hon ble M 43 13Z3 I.T.A.No5,66 to 70 Nag/Z016 I,T,A,Nos.256 to 260/Nag/2016 46 jurisdictional ITAT, Nagpur Bench, Nagpur in the various group cases Of assessee For AY 2006-07 to AY 2009-10. 16.0 On perusal of assessment order; remand report and evidence on record; it i5 seen that the entire addition made in the assessment Framed is based On the seized documents inventorized 35 B-1 to 65, The A.0. has analyzed the said documents and has found that the various amounts shown 0 receipt in the said documents ar withdrawals from bank accounts Of assessee &5 well as from the bank accounts Of sub contractors: It is for this reason the conclusion has been drawn by AO. that payments made to sub contractors are bogus; The A.0. had examined 21 sub contractors a5 is evident from the assessment order ad had identified a sum Of Rs. 54.40 crores til} date of assessment to be credit entries in the seized document having nexus with withdrawals From the bank accounts of sub contractors In the assessment order AO. has computed total addition to be made at Rs.182.52 crores being credits in the seized documents. The sum Of Rs; 54,40 crores was added at the hands of respective assesses in the group On the basis of credits appearing in the bank accounts of Sub contractors; A Sum Of Rs; 128.12 Crores was assessed at the hands of various business entities of the group in ratio Of business receipt The methodology adopted by A0 while distributing the addition on estimate basis itself indicates thati the books Of account have not been accepted &nd have.beex rejected while determining the assessable income at the hands Of assessee; In the Case of assessee in regular assessmert proceedings books Of account were rejected and income was estimated a5 net profit percentage of business receipt at the hands Of varius business entities of assessee group. In the course of remand proceedings, the AO. had made further exercise to identify the credit entries in the diary having nexus with withdrawals from the bank accounts of sub contractors The A.0. in the remand report has made general observation that the credit entries in the seized document are withdrawals from the accounts of sub contractors; However in remand report no specific amountiname of sub contractor has been identified by him as to credit of whom it was in the seized document: The exercise in the remand proceedings was only to demonstrate that the credit entries in the seized document are in relation to amounts withdrawn from the bank accounts Of sub contractors. It is seen that the work executed by assessee group is mainly in 6 PPEL, Jmi 133k I.T_A.Nos.66 to 70/Nag/2016 I.TANos.256 to Z60/Nag/2016 "47" relation to work of various government organizations: The State Government has due process of verification &5 regards to quality and quantity Of work executed before release Of payment; In the case af assessee the work is allotted by Government year after year: This itself is demonstrative for the fact that the State Government has no question a5 to quality a quantity of work executed by assessee The execution Of work Is not disputed by A.0, In the case of assessee work executed is undisputedly through sub contractors, In view of payments made by assessee to Sub contractors cannot be outrightly rejected 35 is being attempted by the Id. A,O, 16.1 On perusal Of various observations made In the assessment order &s regard to seized documents inventorized a5 B-1 to B-65, it is evident that the aforesaid documents do not pertain to ay one of the business entities of assessee group The afaresaid seized document had been maintained by late Shri Gotulalji Bhangdiya On memorandum basis for making the notings in respect to handling of cash relating to activities Of business: The receipt side Of a5sess2e'5 diary has been concluded by A.O. to be out Of withdrawals from the bank account of assessee group as well a5 from the bank accounts of Sub contractors; In the assessment order a5 well 35 in the remand report submitted bY A.O. there is no allegation that the receipt side of the diary contains any receipt over and above in respect t0 activities of business declared by assessee in the return of income In other words; the credits appearing are in respect to activity 0f execution of the various works for Irrigation Department and other government agencies; 16.2 In the case Of assessee much prior to the date of search an action 1334 of IT Act 1961 has taken place on 17/2/2009. In the case Of 3ssessee payments made to various Sub contractors was 9 matter of dispute by the AO. pursuance to survey proceedings: AO. had alleged in the course Qf survey proceedings that the expenditure claimed on account of payment to sub contractor is bogusfinflated The regular assessments have been framed in the case of assessee for the assessment vears 2006-07 to 2008-09 wherein in the payments made to sub contractor have not been accepted and net profit rate was applied in regular assessment framed In fact assessments framed subsequent to survey proceedings for assessment years 2006-07 to 2008-09 have again been framed as re-assessments 4333 13z5 IT.A.Nos.66 to 7O/Nag/2016 I.T.A.Nos,256 to 260/Nag/2016 48 for above stated assessment years in terms of provisions Of section 153A of IT Act 1961. 16.3 The seized document Is not pertaining to ay single entity and it iS record maintained in respect to movement of money by late Shri Gotulalji Bhangdiya In the form of cash flow. The aforesaid submission Of assessee has also been affirmed by two employees in whose handwritings the seized documents are found to be written, 16.4 The analysis Of income assessed by the AO in percentage terms in the various years falling in the block period aS under: Income from Contract Rusiness Assessed By AQjt % Particular AY AY AY AY AY AY AY 2006-07 2007 - 2008-09 2009- 2010- 20If- 2012-13 08 10 11 12 11.7956 41,2790 35,6016 18,60*6 27,44696 49,509 9,349 10.7896 43.1306 25.4480 11,0496 21.7930 33,0520 27.7306 49,5300 73.4490 17.699 41.81%0 16.0370 11,9790 23,3906 26,769 26.265 15,220 13,9410 10,2890 66,53%6 11.9890 27.8396 @.Qb% Mfs, M G Bhangdiya MKS Constro Venture P. Ltd, Ms Mahendra Constnuction Ms; Mahendra Const & M.G Bhangdiva Jv Mfs; KLM Bhangdlya MKS Acme Build P Ltd Mys, M G Bhangdiya and Hitbhav Engg JV MJs M G Bhangdiva and SS PATTL JV MS K M Bhangdiya JY Mitcon Infra Froject P Ltd Congolidated 54.8206 129.9200 13,189 25.289 33,5296 10.0790 10.Qo9a 10.00%6 18.529 34.25Q4 49.970 44.5996 12.360 47,0196 74,3690 The income assessed in various years by the Id. AO varies from 9.349 to 129.9296 and brings in absurdity in income LLate determined with reference to business receipts for various years under consideration. 7 e The above analysis also fully justifies, the c determination of income should be at net profit rate of receipts 8 at the hands of appellant group. Jmi 16.5 The perusal Of the assessment order would make it evident that the source of income of the various business entities Of the various group 15 only in respect to execution Qf government contracts and it has no other major activity Of business where from the income Is derived or generated. The notings found in the seized documents are part of the gross receipt received from the government department The various noting in the seized document are part of the gross receipt of 1z36 1333 ITA Nps.66 to 70/Nag/2016 I.T.A.Nos.256 ta 260/Nag/z016 9 4349 doaitract received by group entities is not disputed The inference drawn by AO is that the entries in the seized inflating the Sub contract document are by payments which have been utilized for incurring illegal expenses: In the Case Of corroborative evidence Or material was found assessee no pf search or during the course anything has been in the course of brought 0n record subsequently assessment proceedings to establish that the notings made in the seized document are in relation to of ay illegal expenses Thus, "tfet AR hasehtoded iatrring that explanation submitted by assessee the as regard to movement of money noted by late Shri Gotuialjee Bhangdiya is plausible reasonable explanation which has been and disbelieved/discarded for no valid justification. I find substantial appellant force in the submission of 16.6 The perusal of the seized document would make it evident that it cannot be identified to one individual business entity of assessee group. The transactions noted in the seized document are of mixed nature being business, The document personal and investment being not related to ay one identified entity, the notings made cannot be held 85 unexplained apportioned credit ta be amongst the various business entities In fact even as per the A.0. the seized document does not belong assessable individual to any one In the absence identified to of seized document being any one individual entity and Same being identified to ay business entity, not it cannot be held to be belonging to business entity 50 a5 to make estimated a5 the hands addition at of various business entities turnover; in proportion to the 16.7 The A.0. at para 6 Of the order has observed assessment that the assessee 2006-07 group for AY to 2012-13 has debited Rs.361 towards cotes sub-contract payment out Of contract grosS receipts from the Government Rs.579 totaling to crores which is More that 62% Of receipts: It gross is seen that sub-contract payments include various payment to associate are concerns which considered 35 receipts In the associate case Of concerns for making assessment AO. The by Same actual payment to outside sub-contractors Rs.263 crores 15 only which {5 459/ of gross contract F3+ IzzF IT.A_No5,66 to 70/Nag/2016 IT.A.Nos.256 ta 26Q/ Nag/2016 SC value The finding of A0. ta the extent of sub-contract expenses at 62% Is factually not correct 16,8 In assessment order at para 5.1, the A.O. has discussed the significance Of the diaries BI to B65 and has observed a5 under: "The analysis of the entries in the diaries reveal_tat 0n receipt side variQus receipts including receipts__ from withdrawals_itom bank accounts_of_group entities and_sub contractors_were_{ecorded andon payment side entries of expenses like interest_pavments; tepaymeot of_toansz deposits into bank accounts house hold expensesz personaL expenses; payments to various_persons_il casbz investment inproperties etc were recorded For the F Y 2006-07 to 2008-09 and ZOll-1Z the cash books ad the ledgers mainly contain the Cash receipts and the payment entries in cash It i5 interesting to observe that Some Of the entries in these diaries were also reflected in the regular books Of accounts maintained by the a5ses5ee group. In the same para in answer to question No: 30 from the statement of Shri Mitesh Bhangadiya recorded On oath An 20/07/2011 it is evident that it iS stated that seized documents are details of cash flow The A.O at page 9 in the same paragraph has observed that they contain probable extraneous gratifications It is evident that A.O. has no evidence on record for any illegal gratification but observation is made on inferences and presumption The observation at para 5.1 infact clearly explain the nature of entries found noted in the seized document to be in the nature Of cash flow, The A.O. has also recorded that receipts are from bank accounts of group entities and sub- contractors: On the face of such observation conclusion of A.O. holding that credit entries are assessable income at the hands Of assessee as unexplained credits is unjustified, 16.9 The A,O. at para 6 of assessment arder has discussed the nature of sub-contracts, The A.o, has on enquires from bank account found that withdrawals made has been credited in daily cash balance of diaries The AQ. on inference has observed that same are utilized for unaccounted payments. The A0. at page 17 has observed that most 0f the sub-contractors are name Iojm [38 335 I.T.A.Nos.66 to 70 Nag/Z016 IT A.Nos-256t0 280/ Nag/2016 51 lenders and are Of meager names ad some are employees: The names observed are Shri Kesharsingh Rotele ad Firous Khan etc: It i5 seen that both individuals as observed are assessed by same AQ. The income from sub-contract work done for assessee has been accepted In the assessment framed uls 14303)/153C of IT, Act 1961 0n the same date The receipts from assessee having been accepted for assessing income at the hands of such individuals; payment made by assessee cannot be doubted 25 non genuine at the hands Of assessee Similarly AO. has observed names of other subcontractors; Out of names Of sub-contractors observed Shri Sanjay Malani, Shri Chintaman M Nakade; Shri Vishal Rachalwar, Shri Dwarkadas M Bhutada, Shri Dnyaneshwar Meshram and Shri Suresh Masram have been assessed ujs 153C by the same AO The receipts from assessee having been accepted for assessing income at the hands Of sub-contractors, payment made by assessee cannot be doubted a5 non-genuine at the hands Of assessee 16.10 The A0. at para 7 has made analysis of diaries marked On Bf to 865 A.0. at para 7.1 it Is categorically observed that receipt side contains amount withdrawn from banks cf assessee group concerns and individuals . The financial year wise receipts entered in these diaries were computed at 182.52 crores It is strange that A.O. at one hand observed that withdrawals from bank account Of business concern and individuals is credited on teft side of the diaries and at the same time he concluded the same as unaccounted income The A.0. has not doubted the deposit in the bank account of assessee; In fact they are deposit of receipt which are considered &s income withdrawals of such amount cannot again be assessed 35 income: This clearly shows incorrect and unjustified approach for determining the income 16.11 The AQ. has observed in various part of assessment order that amount withdrawn from diaries 15 utilized for unaccounted payment or unallowable expenses like gratification paid to variOus politicians ad Government employees. The assessment record does not show any corroborative evidence on record to hold that assessee has made payment of any Illegal gratification In fact A.O, at page 9 has observed that payment made in cash is for probable extraneous gratification which supports the submission made that assessee has not paid any 1338 1331 I.T.A,NDs-66 to 70/Nag/2016 ITAA.Nos.256 to 260/Nag/2016 2462 illegal gratification: The conclusion of A.o. Is on assumptions and presumptions which are unjustified, The A.O. although has computed payments out Df seized documents out has not brought on record any corroborative evidence to support his inference] conclusion drawn: 16.12 The working made by A.O. at page 36 to 38 about analysis Of payment out of seized documents are just adverse inference drawn On assumptions and is not based On any corroborative evidence on record: 16.13 The AO. at para 8 has observed &s to confronting of seized documents to assessee; The replies submitted have been partly reproduced It i5 seen that in the course Qf search the statement of the ass2Ss82 waS recorded on 20/07/2011 and assessee has explained in answer t0 question No.30 that seized dacuments are details of cash flow and same has been reproduced in assessment order On page 5. During the assessment proceedings too, the assessee has explained that the diaries are notings for movement of cash in reply to question No; 23 in the statement recorded on 27/07/2013. The assessee ali along in the course Of assessment proceedings had explained that the seized documents are to be in the nature of notings, for. movement Of fund It was explained in the course of assessmert proceedings that the Sub contractors On withdrawal of mone" from their bank accounts used to keep in trust-safe custody the amounts which are found to be noted in the seized documents; 2 The explanation submitted by assessee was verified by the AO, and it was found that the withdrawals made from the bank accounts Of the Sub contractors is on certain occasion credited in the seized document It was further explained that the amounts credited in the seized document being the amounts received from the sub contractors were remitted to the sites where such sub contractors work executing the wOrk; The amount remitted was through any representative of the sub-contractor or any person going to various sites which are located at remote places The seized document contains notings In respect to handling of cash by late Shri Gotulalji Bhangdiya who has expired in April 2011. The assessee in the course Of assessment proceedings has explained to best of his ability a5 to how notings happened to be made in the seized document The statement as made at the time Of search continued to be the same in the course of assessment proceedings that the seized pE Jmi 1346 4333 I.T.A.Nos.66 to 70/Nag/2016 ET.A.No5.256 to 260/ Nag/2016 53 documents are in respect to movement of cash with regard to activity of business, personal expenses and investments made by assess2e. The Investigation Wing of the Department or the A.Q in span Of aimost more than three ad half years have not brought ay evidence On record to show that the various notings made in the seized documents are in relation to any illegal expenses incurred by assessee The explanation submitted by assessee was substantiated by submitting independent evidence of affidavits of sub-contractors that they had collected back the amounts deposited with: late Shri Gotulaljee Bhangdiya. The various persons who had submitted the affidavits have not been cross examined subsequent to affidavits submitted and nor any material or evidence on record has been brought to dislodge the averment made in the affidavits The contents of the afidavits have gone unrebutted and have to be taken a5 true and correct The aforesaid proposition Is in line with the law laid down by Hon'ble Apex Court in the case of Mehta Parekh reported at 30 ITR 181 (SC) wherein it has been held that: "No further documents or vouchers in relation to those entries were called for, nor waS the presence of the deponents of the three affidavits considered necessary by either party: The appellants took it that the affidavits of these parties were enough & neither the AAC; npr the ITO; who was present at the hearing of the appeal before the AAC considered it necessary to call for them in order to cross-examine them with reference to the statements made by them in their affidavits; Under these circumstances it waS nt Qper to the Revenue t cballenge the correctness pf the cash entries or_the Statements_made by those deponents in their_amdavits; m 16.14 The A.Q. ha5 observed that the various Sub contractors in the case af assessee are bogus. The A.0. has listed the names of such sub contractors at para 9.1 of the assessment order: It is observed that the aforesaid sub contractors are als0 assessed by the ACHT, Central Circle-2 (1), Nagpur who I5 also the A.O. of assessee group. In cases Of such sub contractors notices under section 153C of IT; Act 1961 were issued and returns Were submitted by such sub-contractors pursuance to receipt of notice under section 153C of IT Act 1961. The assessments have been framed under section 153C of LT Act 1961 by the same A.O. wherein income returned in respect to business income shown 133& Ih) I T,A,Nos-66 to 70/Nag/2016 IT-A.Nos-Z5& to 260/Nag 2016 54 arising to such sub contractors out Of receipt received from the assessee have been accepted The A.O. having accepted the business receipt at the hands Of sub contractors for determining the income In the cases Of Sub contractors could not have concluded that the payments made by asseSSee to such sub contractors are bogus: Considering the entire evidence 0n record and fact that in the case Of assessee books &f account have not been accepted in the past assessment years; 1 am Of the considered opinion that assessee" 5 income in the case of assessee needs to be estimated on the basis of business receipts ad that would be most appropriate ad reasonable manner for determination of income at the hands of assessee group: The addition made by A.O: by referring to seized diaries is unjustified and unsustainable for various reasons abservved hereinabove The income Of assessee need to be determined at estimated percentage Of business receipt at the hands of respective assessee's Of group. 17.0 It is settled proposition of law that the Income sought to be taxed should be in the nature of real income of assessee The aforesaid proposition is in line with the decision of Hon'ble Apex Court in the case of Sanjeev Woolen Mills VS. CIT reported at 279 ITR 434. In the case of assessee the A.0. has made additioh _ during the block period to the tune of Rs.182,52 crores" The addition made Is over and above income offered by assesseg in the return as additional income of Rs,26 crores offered during the course Of search &d Rs. 11 crores offered during the course Of survey proceedings for the years falling In the block period. In the course of search assessee Is not found to have possessed any such huge undisclosed assets So a5 to justify assessment of such huge income at the hands of assessee The addition made by A.O. of such huge income cannot be held to be justified on principle of real income a5 settled by Hon'ble Apex Court: The addition made by A0. thus is clearly excessive and unreasonable 18.0 It is seen that in assessment framed in the case of Ms. Admane Construction Co. for assessment year 2005-06, AO: had made additions in respect to bogus labour payments, bogus sundry creditors &d other disallowances: In the appeal filed by such assessee before CIT {Appeals) it was held that the income "ro5 13ha _ +721 IT-ANos.66 to 70/Nag/2016 I.T.A.No5,256 to 260/Nag/2016 9504 needs to be determined at the estimated percentage Of business receipt towards civil construction and accordingly it was directed to asse5s net profit at 8% Of the contract receipt The department challenged the matter befare the Hon'ble TTAT seeking to sustain specific additions on account of bogus labour payments and bogus trade creditors, The appeal filed by the revenue was dismissed by Hon'ble IAT in ITA No: 93/Nag/2012 vide order dated 01/05/2013. The appeal filed by the revenue against the order of ITAT has also been dismissed by the Hon'ble Bombay High Court;, Nagpur Bench in ITA No: 134 of 2013 vide judgment dated 09/12/2015. The ratio laid down in the aforesaid case fully supports the submission of the assessee that in the case Of assessee determination of income on estimated basis is most reasonable and rational manner for determining the tax liability at the hands Of assessee 19.0 In the case Of Shri Mitesh Bhangdiya and Group, an action under section 1334 Of IT Act1961 was also taken by the Department on 17.02.2009 prior to the date of search: In the Course of Sunvey under section 133A of LT Act; 1961, the statements of various sub-contractors were recorded and the verification Of the records maintained by assessee group was undertaken by the A.O. having jurisdiction: In the course Of survey action In pursuance to discussian with the A0. ad after considering the fact that no complete record was available with assessee as well as with the subcontractors executing the work; it was agreed to offer additional income at Rs: 11 crores amongst the various business entities the Bhangdiya group for the assessment years 2006-07 to 200g-10. The aforesaid assessment years covered by survey action are also forming the part of the block period which is assessed in terms of provisions of section 153A of IT Act; 1961. In the case Of the assessee group; prior to the date of search, regular assessments were completed up to assessment year 2008-09. In the regular assessments framed; the AO after considering the additional income Offered at the time Of survey proceedings and the facts and circumstances on record including that payments made to sub-contractors and various defects]mistakes a5 found during the course f survey; had estimated the net profit at 14% of the net receipts computed at the time Of assessment proceedings, The aforesaid estimated addition made at the hands Of assessee were Subject matter of challenge before CIT(Appeals) , Nagpur: During the period while appellate proceedings were pending, 4zh_ 13h3 I.T.A.Nos.66 to 70/Nag/2016 I.T.A.Nos.256 to 260/Nag/2016 436. action under section 132(1) of LT Act; 1961 had taken place at the business premises of assessee group On 19.07.2011. The CIT(Appeals) after noticing the fact 35 regard to action under section 132(1) of I.T: Act; 1961 at the premises Of assessee and considering the additional disclosure made by assessee group in the course Of search proceedings; had dismissed the appeal filed by assessee vide order dated 05.03.2012. 20.0 The order passed in the case af assessee in appellate proceedings WaS challenged before Hon'ble ITAT; Nagpur Bench, Nagpur: The Hon ble ITAT, after considering the entire material facts and evidence on record concluded that assessee group to be assessed at 129 of the receipts and thereby granted part relief in the cases of various assesses Of Bhangdiya group. 21,0 It is thus seen that prior to proceedings having been initiated under section 132(1) of LT Act 1961, an action under section 133A of IT Act 1961 had taken place at the business premises Of assessee on 17,.02.2009. Pursuance to action under section 133A Of LT Act 1961, a lump-sum amount was offered for taxation In respect to various assessment years which are als0 forming part 0f block perlod for the search. In the case of assessee bookS Of account were not accepted and were rejected in assessment framed under section 14363) of LT Act 1961 It a fact on record that books 0f account had not been accepted the purpose of framing assessment at the hands of assessee, In view of the above verification of entries with reference to regular_ books of account looses relevance and has no bearing For determining assessable incame in the hands of assessee 22.0 In view of the above facts and circumstances ad keeping in view Of various infirmities and various judicial decisions a5 discussed in foregoing paras 0f this order and to meet ends of justice; to my considered opinion it would be fair and reasonable to adopt the net profit 169 on the gross receipts of Rs,579 Crs: ; being the turnover of the various group concerns for the block period from AY 2007-08 to AY 2012-13 in the respective years of the block and bring the same to the taxation pn the guidelines determined by the Hon; ITAT, Nagpur Bench, Nagpur in ITA No.268, 269 285/Nag/2012 vide order dtd.07.03.2013 on the similar activities of business a5 well 35 deficiencies found in the case of the appellant during the course (PPELL , Zwoow 1344 IT A.Nos.66 to 70/Nag/2016 M" _ I T.A.Nos.256 to 260/Nag/2016 f survey action conducted at the premises of the appellant group on 17.02.2009. The relevant facts as emanated from para- 4 of the rder Of the Hon 'ble ITAT in the case of the appellant are &5 under: "4 Brief facts of tte case are that a survey u/s. 1334 of the Income Tax Act;, 1961 was carried out in the business premises Of the assesses and his associates On 17.02,2009. During the course of survey operations it was found that most of.the bills, vouchers and other evidence in support of the entries in the books Of account like labour charges; material purchases; 'machine hire charges, site expenses; Sub contract expenses, oil and lubricants, repairs and maintenance etc: pertaining to this AY were not available Statement Of Sri Mitesh Bhangadiya was recorded under Section 1334 a us. 131 of the Act on behalf of the assesse, In the statement dt.24.02.2009 and 13.03.2009, in response to various questions relating to the genuineness Of the payments to third party Sub contractars and in respect to other deficiencies the assessee admitted additional income in group cases Of Rs; 11 crore and proportionately Werz allocated between ali the assessment years relating to these four assessee For the vear under consideration 'i e for assessment vear 2006-07 in case Of Sri Mithesh Bhangadiya, the additional income was offered at Rs.23,97,361f- besides the income shown originally at Rs.23,63,910f-. Due tax was paid before the issuance of notice under Section 148 as admitted by the AO in para 2 Of his order; The important contents Of submission recarded on 24-02-2009 and 13-3-2009 of Sri Mithesh Bhangadiya are incorporated in the order of the AO. In query Of question No. 11, it was answered that during the course Of survey, it was noticed that there are certain discrepancies and omissions and to cover up ali Such discrepancies we have made Out mind to offer additional income over ad above the regular income We are under the process to determine such additional income to avoid litigation and, to buy peace Of mind Thereafter in response to question Nos 18 & 19 of the statement recorded on 13-3-2009, it was answered that the sub contractors were awarded the sub contract work by our firms 3S per contract notes and the nature Of Sub 1343 1345 I.T.A.Nos.66 to 70/Nag/2016 I,T,A.Nos-256to 260/Nag/ZOI6 contractors has been that labour charges and machine hire charges. The sub contractors by ad large Illiterate ad therefore; their books Of accounts found to be incomplete, without maintenance Of any bills and vouchers. The expenses incurred by Our firm has been on the basis Of the so called vouchers raised by them and therefore; there appears the discrepancies In the expenses claimed. It was further stated that the assessee has admitted in his previous statement recorded during the course of survey that there are certain discrepancies and anomalies in the sub contract expenses In their books of accounts; non availability of bills and vouchers for the past three assessment years; Accordingly , it was submitted that there were certain discrepancies ad anomalies in the Sub contract accounts, in books Of accounts for assessment years 2006-07 to 2009-10. The assessee declared the additional income f Rs. 1f crore in their firm and the five sister concerns in the assessment year 2006- 07 to 2009-10, The working Of the additional income of Rs. 11 crores will be done accordingly and the same will be shown: These part of the statements have been incorporated in the order Of the AO a5 state above: Thereafter the AO started scrutiny of the case: ,The; AO noted that the assessee has shown various expenses under the head labour & wages; machine hire charges; site expenses and sub contract expenses etc; On very higher side; which are not supported by valid vouchers: Neither any further evidence was filed, It was als0 observed by the AO that since there are various deficiencies in accounts Of sub contracts and the assessee has offered a sum Of Rs. 23,97,361/- on account of discrepancies in respect to Sub contract; therefore; he praceeded tp make further addition On account Of various deficiencies ie In absence Of bills and vouchers; excess claim towards machinery hire charges, verification of applicability Of provision of Section 194C and denial of alleged sub contractors regarding the Sub contract given by the assessee. All these discrepancies are noted by the AQ in his order. Thereafter In para 7 the AO has observed that after having rejected the books Of account of the assessee under Section 14503) of the Act; the profit of the assessee has to be estimated reasonably: The AO also observed that the assessee has declared net profit ratio of Om
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