A,C.I.T. CENTRAL CIR.- 2(1), NAGPUR vs. SHRI KIRTIKUMAT M. . BHANGADIYA, NAGPUR

The assessee denies liability to pay interest under section 2344, 2348 and 234C of LT, Act 1961. Without prejudice, levy- of interest under section 2344, 234B and 234C of IT Act 1961 i5 unjustified, unwarranted and excessives 2 During the assessment year 2011-12, the assessee has taken the following grounds of appeal: 1. The notice issued under Section 153A of IT Act; 1961 is illegal, invalid and bad in law and consequent assessment framed thereupon Is liable to be cancelled 2, The Learned CITIA) ought to have directed to accept the income a5 shown in return filed pursuance to notice ufs, 153A of IT Act 1961 ad deleted the entire addition as 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 Kan Pig I.TANos.62to 65/Nagf2016 I.T.A_Nos,274 to 2276/Nag/2016 I,T,A.N0s.282 & 283/Nag/ 2016 {035" made by the Government Departments on account of material supplied, sales tax and service tax etc: 4 The addition confirmed by learned CITIA) by adopting 16% of receipts I5 unjustified, unwarranted and excessive, 5. The Id CIT(A) erred In enhancing income by Rs.13,52,507/- in respect of activity of business 6. The addition made by Id CIT(A) at Rs.13,52,507/- to the income from business i5 unjustified, unwarranted and excessive 7. The assessee denies liability to pay interest under section 234A 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; 3 In Its appeal for assessment year 2007-08, the Revenue has taken the following grounds of appeal; In assessment year 2008-09 to 2011-12, similar grounds are taken except change in figures; "1, Whether on the Facts and circumstances of the case and in law the Ld_ CIT(A) was right in thwarting the very purpose Of search and seizure provisions Of the Act by ignoring seized incriminating documents and thereby directing the AO t0 tax the income on presumed percentage based on surmises 2 Whether on the facts and 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 AO has specifically asked Of being heard vide his letter dated 19.02.2015 ad 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 law; the Ld CITIA) was right in deleting the addition of Rs. 55,76,940/- made On account of bogus sub-contract payments? Oapr peRtt |026 I.TA.Nos-62 to 65/Nag/2016 ITA.Nos.274 to 2276/Nag/2016 I.T.A.Nos.282 & 283/Nag/2016 Whether on the facts and in the circumstances of the case and in law; the Ld, CIT(A) was justified in deleting the addition of Rs; 55,76,940f- made On account Of bogus sub-contract paments 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 and circumstances of the case and in law the Ld. CITTA) 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 and the entries in the diaries were not completely recorded in the books Of account; 6, Whether 0n the facts and in the circumstances of the case and in law, the Ld, CITIA) was right in deleting the addition of Rs. 55,45,680/- being unaccounted income? 7. Whether 0n the facts ad in the circumstances Of the case and in Iaw; the Ld. CIT(A) was justified in deleting the addition of Rs. 55,45,680/- being unaccounted income without appreciating the evidences found and seized during the search and seizure action? 2 8. Whether &n the facts and in the circumstances of the case and in laW; the 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 5ub- contractors, unaccounted income and gratification payments? 9 On the fact ad circumstance of the case and in law the Ld. CITIA) erred in accepting assessee's 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 shali be in the name Of the sub- contractors but the fact is otherwise 25 only names of tte banks iere found written there: { [oxt +4S I.T A.Nos.62 t0 65 (Nag/ 2016 I.TANos.274 t0 2276/Nag/ 2016 5 I.T_A,Nos-2B2 & 283/Nag/2016 10. On the fact and circumstance of the case ad in law the Ld. CITIA} erred in accepting assessee'5 contention that the sub contractors kept their money for safe custody with the assessee group a 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 and circumstance Of the case ad in law the Ld. CITIA) erred in not calculating exact unexplained expenditure and unaccounted investment mentioned in seized incriminating diaries a5 well as inflated claim of expenditure in various projects and directing the AO to assume certain percentage: 12 On the fact and circumstance Of the case and in law the Ld CIT(A) 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 aS bogus sub contract payments and in the hands Of the sub contractors protective assessments were made by treating the entire receipts as incame 35 no contract Was executed 13. On the fact ad circumstance of the case and in law the Ld; CIT(A) erred in observing that unaccounted payments Or unallowable expenses like gratification paid to various politicians and government employers have no corroborative evidence On record to hold that assessee has made payments of any illegal gratification: The onus in on the assessee to prove that the payments were genuine and incurred legally: As the cash pavments were not recorded in the regular books of account and 35 the assessee failed to substantiate those payments; the CITIA) 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 on the decision Of Hon'ble ITAT in Bhangdiya group of cases a5 at that time the information contained in incriminating diaries was not available either to the AO or to the appellate authorities wtile restricting it to 12%. The CIT(A) ought not have relied On the decision of Honble [03t- /038 I.T.A.Nos.62 to 65/Nag/ 2016 I.T_A.Nos.274 to 2276/Nag/2016 I,T,A Na5.282 & 283/Nag/ 2016 ITAT when seized documents prove clear concealed income ad unexplained expenditure: 15, On the fact ad circumstance Of the case ad in Iaw the Ld. CIT(A) ought to have appreciated the fact that in the case of assessee's group it is not feasible to estimate the net profit at a particular ratio as out of gross receipts of 579 crores the assessee group made unaccounted payments to the tune of Rs: 171 crorgs and hence spent only Rs. 408 Crores towards execution Of contract work; Whatever prorit was derived On execution 0f the contract wark 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 of the assessee 16. On the fact ad circumstance of the case ad in law the Ld. CIT(A) failed to apprediate that the taxable Income need not be equal to the actual net profit derived by the assessee as it may Include addition towards various other provisions like section 4OA(3}, 40(a)(ia); 68, 69, 69C etc ad in the case of the assessee group addition u/s. 69C Is applicable 4, 3 ) Ground No. 1 & 2 taken by the assessee were not pressed during the course of hearing therefore; these grounds are dismissed as not pre ted: 5 Ground Nos; 3 to 5 in assessee's appeal for assessment year 2007-08 to 2010-11 and ground No. 3 t0 4 in assessment year 2011-12 as well as ground nos; 1, to 16 in Revenue's appeals relate to the common issue regarding the deletion of addition made an account of bogus sub-contract payment; deletion of addition being unaccounted income by the CIT(A) ad sustaining the addition by CIT(A) by estimating the profit by adopting 16% of the gross receipts. 6 The facts and circumstances and issue involved in all these appeals are similar and identical therefore, all these appeals are being disposed of by this consolidated order for the sake of convenience, The assessment year- 039 It.A-Nos.62to 65/Nag/2016 I.T.A Nos.Z74 ta 2276/Nap/2016 I.T.A.N0s,282 & 283/Nag/2016 wise details of date of filing of return, returned income assessed income and the section are lald down as under: 5, No A.. Date of fiiing of return Returned Income (Rs.} Assessed Income Section (Rs.) 2007-08 31.01.2013 67,13,110 1,44,22,525 1534 2 2008-09 31.01.2013 58,92,980 1,43,51,902 1534 3 2009-10 31.01,2013 69,54,550 1,38,58,172 I53A 2010-11 31,01.2013 1,40,99,460 51,57,019 1534 7 The facts of the case; In brief; are that Search and seizure operations were conducted in the residential premises of Shri Mitesh G, Bhangdiya on 19/7/2011. Simultaneously search actions were carried out in other premises belonging to Bhangdiya Group including three residential-cum-business premises; one office ad ore 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 incriminating documents and diaries were found and seized: Thereafter notices ufs 153A of the I.T. Act dated 28/12/2012 were issued 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 filed the return for each of the assessment years in response to notice Ujs 153A 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) Klrtikumar (son) + Sonal (wife of Kirtikumar) 4021 1032 I.T.ANos,62 to 65/Nag/2016 I.T.A.Nos.274 to 2276/ Nag/2016 I.T_A No5.282 & 283/Nag/2016 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 (hereinafter referred to as SMB) The other important persons in the group are: Shri Sanjaykumar Rameshchandra Heda; husband of MGB's sister , Smt, Pradnya, residing at Amravati and Smt; Manisha O..Maniyar, widowed sister of MGB wto 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 I. Ms M.G Bhangdiya (AERPB2SOBE), (Prop. MGB}; converted into a 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) (AANFMS6S8B) Ms Kirtikumar M. Bhangdiya (Prop- KMB); converted "into 3 company Ms M.KS,; Acme Buiidcon Pvt; Ltd. (AAHCMO_S2K) from 01.04.2011, (AGYPB16S9G) Ms KM. Bhangdiya & Mahendra Constructlon: (JV} (AAKFK18ZOC) MJs Shrikant M. Bhangdiya (Frop. SMBH(ATCPB1337)) Mitcon Infraproject Pvt; Ltd. (MIPL) (AAGCM1868H) Lokshahi Publications Pvt: Ltd. (LPPL)(AABCL6673L) MITZ Infraproject Pvt. Ltd (AAGCM3O4ZA) Sakshi Gruh Nirman Pvt Ltd: (SGNPLH(AAOCS7974G) Balaji Stone Crusher & Infraventure Pvt: Ltd.(AADCB5273C) 2 3 AP PE 4 5 6_ 7 8_ 9_ 10_ 11_ 73 The group has also entered into joint ventures with variQus other civil contractors of the city to secure some civil contracts; A few of them are listed below: 1_ Ms M,G. Bhangdiya & Hitbhav Engg (JV) (AAOFM474SL) 4 1039 I.T,A.Nos-62 to 65/Nag/ 2016 I,T ANos 274 to 2276/Nag/2016 I,T.A.No5.282 & 283/Nag/2016 2 3 4 031 Ns M.G; Bhangdiva & 5. S. Patil & Co. (JVJ(ABIFS364SL) Ms Darshan Construction (JV) (AAHFDO654N) M/s M R Dhoble 8s K M Bhangdiya (JVJ(AAPFMO622B) 7.4 The nature of the business Qf the group primarily is executing civil contracts. The group work mainly for Government departments like Ms Vidarbha Irrigatian Development Corporation and engaged in executing various cantracts pertaining to the irrigation projects in the state Of Maharasttra The evidences selzed from the business and residential premises reveal that the entire business activities are managed by Shri Mitesh Bhangdiya and his sons 7.5 During the course of search operations several incriminating documents were found and seized 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 ujs 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 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. 7.7 The Assessing Officer in para-5.1 Of 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 (033 +e3t I.T.A.Nos.62 ta 65/Nag/2016 IT,A.Nos.274 to 2276/Nag/2016 :1 IT,A.Nos.282 & 283/Nag/ 2016 Bhangdiya 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 politicians, government officersfofficials which are recorded therein: Prima-facie the Assessing Officer has neither examined such parties referred In the order nor brought any corroborative evidence on record in support of his finding that the payments made in cash are for probable extranequs gratification to various politicians and government officers/officials; 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 ad regular books af account; 7.9 The Assessing Officer noted that the assessee group has clained huge expenses on account of sub-contract payments. During the AY 2006- 07 to 2012-13 the Bhangdiya group has debited Rs.381 crores towards the sub-contract payments against the gross receipts aggregating to Rs.579 crores which constitutes 620 (not correct) Qf the gross receipts, Qn verification of bank accounts af the sub-contractors, the Assessirg 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-contractors accounts are found credited to 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 ITANos.62 to 65/Nag/ 2016 LTA_Nos.274 to 2276/Nag/2016 I.T_A.Nos.282 & 283/ Nag/ 2016 4232 [e3H 12 admitted that the entries in the seized diaries marked a8 Annexure B-1 ta B- 85 pertain to daily cash handling of the group, and has reaffirmed in his subsequent staterent dated 27/07/2013 recorded by the Assessing Officer. The cash withdrawn from the bank accounts of the sub-contractors and by them ad kept with the assessee for safe custody and to be issued at various sites a8 per the requirements on behalf of such sub-contractors_ The Assessing Officer concluded that these sub-contractors are name lenders , therefore, the payments made to them is bogus expenditure: The Assessing Officer in his assessment 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 finally has been made, 7.10 The Assessing Officer in his order noted that statements of 17 sub- contractors ta whom payments have been made by Bhangdiya group under the head subcontract payments wee 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,Gutx; contract an all income-tax matters of these sub-contractars were, handled by the Bhangdiya group. The Assessing Officer has also merition that the persons at sites were getting a small amounts ranging between Rs.15,0O01- to 25,0001- at the sites 35 advance from the assessee group 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.15,000/- to 25,0001- 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 0 7.11 The Assessing Officer had done the scrutiny of entries made in the diaries seized at Annexure B-1 to B-65 in the assessment arder. The RP (83S +e33 I.T,A.Nos.62 to 65/Nag/2016 IT,AN0s.274 to 2276 / Nag/2016 I.T.A.Nos,282 & 283/Nag/2016 diaries are in the form of cash books which contained cash receipts on ane side ad 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 received from individuals; The narration of the entries in some cases mention name and place of the banks and at some places names of sore of the sub-contractors are also 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 200g-10 44.34 2010-11 51.32 2011-12 11.00 Total 182.52 4o3h (63C I.T.ANos.62 to 65/Nag/2016 I.TANos.274 to 2276/Nag/ 2016 IT.A.Nos.2B2 & 283/Nag/2016 7.42 According to the Assessing Officer, the Bhangdiya group has claimed huge expenses towards sub-contract payments & 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 the funds for unaccounted expenses such as gratification to polic Iticians and government officers/officials: 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 ad 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 transportation, petrol diesel expenses etc: The Assessing Officer in order to elucidate the modus-operandi has reproduced few scanned copies 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 Crares) 2006-07 7,99 2007-08 28,89 2008-09 19.71 2009-10 52.09 2010-11 50,33 2011-12 12.09 Total 171.10 1 0 JNi 7ea '257 IT,A.Nos.62 to 65/Nag/2016 ItALNos.274to 2276 / Nag/ 2016 "s I.T.A.Nos-28Z & 283/Nag/2016 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 link the cash withdrawals from the bank accounts of the subcontractors and the bank accounts Qf variqus concerns of Bhangdiva 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 carrelate the withdrawals from all the sub-contractors of the assessee group with the respective group concerns, 21 sub-contractors bank accounts were verified: 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 pf this; cash withdrawals From the bank accounts Of the Sub- contractors; 35 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 added 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 payee cheques by various concerns 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 of Bhangdiya group in propartion to the amount of cheques credited by the Ie3e I.T-ANos.62 to 65/Nag/2016 IT,A,Nos.274 to 2276/Nag/2016 I:T,A.Nos_Z82 & 283/Nag/2016 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 to the balance amount of unaccounted income of Rs,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 to 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 i5 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 to explain the entries in the diaries but no such explanation was Offered: As_ the entries In the diaries were made giving narration of eitter- name of the bank &r name of the bank along with the branched and a5 some of the sub-contractors are having bank accounti in the same bank ad 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 ; ad in view of the assessee's non- cooperation in this matter, the only opinion left is to add the balance amount of Rs.128.12 Crore to the income of the group concers 0n prorate basis i.e in the ratio Of contract receipts shown by the group concern in the respective assessment years to the total turnover f the group concerns in that vear. 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 1 2ni fo39 +37 IT,A,Nos.62 to 65/Nag/2016 LTANos.274 to 3276/Nag/ 2016 T7 I.T.A.Nos.282 & 283/Nag] 2016 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 Qf 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 addition of Rs.128.12 Crs. in the hands of various group concerns on prorate basis in proportion to the contract receipts deciared by such group concerns in various 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 169 on the gross receipts of business concerns of the assessee group among the various assessee group concerns including the assessee: The CIT(A) while estip imating the profit @16% appreciated the arder of the Tribunal in the case of the assessee group in I.T.ANos 268, 269 and 285/Nag/2012 in the case of the assessee dated 03/04/2013 for the 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 0n which the Assessing Officer has relied while making the addition during the impugred assessment; directed the Assessing Officer to work out the income by 4e32 /oko I.T.A.Nos-62 to 65/Nag/2016 I.T.A.Nos.274 to 2276/Nag/2016 I.T,A.No5,282 & 283[Nag/2016 applving net profit 12%. The CITIA) has directed the Assessing Officer to adopt 168/ of the gross receipts as the net profit for the block period of the search consisting of the assessment year 2007-08 to 2012-13 instead of 129 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 immovable assets amounting to Rs,26 crores and in jewellery of Rs.2.37 crore respectively, the net profit is directed to be adopted @169 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 a5 under: "10.0 I have carefully considered the submissions Of the AR of the appellant; the assessment order, the material on record, the remand report of the AO and the judicial decisions relied upon by the AR: 11.0 On careful examination Of the material facts, the faliowi facts have emerged from the submissions Ofthe ARipf 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 &f Rs; 51.29 crores and no income could be said to have been earned in respect to such deduction for the purpose of determining the income in the case Of assessee, The gross receipts before deduction are to the tune of Rs. 579 crores and the net rexeipt 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 1534 of IT Act 1961 is more than reasonable and thus there 15 no warrant Or justification for making ay addition at the hands of Jokl I.T.A.Nos.62 to 65/Nag/2016 I,T.A.N0s.274 ta 2276/Nag/2016 19 I.T.A.Nog.282 & 283/Mag/ 2016 assessee: The action Qf AQ in not considering receipts at 527.71 crores ignoring the binding decision of Apex Court in the Case pf Brij Bhushanlal reported at 115 ITR 524 (SC) i5 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 t0 the assessee group for executing the orders year after year on completion of the work allotted from time to time: There i5 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 a reasonable rate f profit alne could be liable to be assessed at the hands of assessee The assessment Of income at more than 40%6 of the receipts in no manner of consideration can be considered 35 reasonable 11.3 The AR has enclosed detalls Of the business income assessed by the AO. in terms of percentage Of gross receipts shown in the returns of income by various entities of the group: The various percentages of income 35 computed by the AR would indicate that the income assessex 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: Tax Af Pell 3 0 0 Income fron Contract Business AssessedbYAQin "terms; Particular AY AY 2006- 2007- 07 08 11.790 41,27%6 AY AY AY AY AY 2008-09 2009-10 2010- Z01f- 2012-13 11 12 35,60% 18.609 27.4690 49.50P 9.3400 10.7890 43.139 25.4496 11.04% 21.7900 33.0590 27.739 Ms. M G Bhangdiya MKS Constro Venture P. Ltd. MJs. Mahendra Construction Ms. Mahendra Const. & 49.5394 73.4494 17.6906 41.8190 16.0390 MG. Bhangdiya Jv Mfs K.M. Bhangdlya 11.9790 23.3990 26.7696 26.2696 15.2290 13.9490 MKS Acme Build P Ltd 10,289 Ms. M G Bhangdiya and 66.5396 11.9896 27.839 0,00%o Hitbhav Engg JV Ms M G Bhangdiya and 5S 54.820 129,9206 13,180 PATIL Jv M/S K M Bhangdiya JV 25.289 39.529 Mitcon Infra Project P Ltd 10.079 10.0086 10.00%6 Consolidated 12.3690 47.0150 74.360 18,520 34.259 49,9790 44.590 ptp [eh? IT,A.Nos.62 to 65/Nag 2016 ITA.Nos.274 to 2276/Nag/2016 I.T.A.Nos.282 & 283 /Nag/2016 11.4 It 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 iS also On estimated basis being percentage of net receipt received by each of the business entities Of the assessee gTouP. The appellant during the assessment proceedings has explained before the A.O. that the verification of the seized documents with reference to books Of account loses its relevance in 35 much a5 that the books 0f account have not been relied upon by assessee at the time of declaration of income and thus it would be only fair to determine a reasonable income On estimated basis which could be said t0 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 of IT Act 1961 have been framed for assessment years 2006-07 to assessment year 2012-13, The nature Of activity being execution 0f 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 year 2006-07 has accepted the income &5 shown In the return under section 153A Of IT Act 1961 at about 12% Of the gross receipts: The AO. having accepted the net profit of 12c On the receipts for assessment year 2006-07, ought not have made additions on different footings in the case of assessee group for subsequent assessment years under the similar circumstances EL 11.6 The perusal of the assessment; order would make it evident that the source of income of the various business entities of the graup is only in respect to execution of government contracts ad it has no ather major activity of business where fram the income is derived or generated. The notings found in the seized documents are part of the gross receipts received from 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 Jwobn lekz Jontt I.T,A_Nos.62 to 65/Nag/2016 I.T.A-No5.274 to 2276/Nag/2016 21: I.T.A.No5,282 & 283/Nag/2016 inflating the sub contract payments which have been utilized for incurring illegal expenses. The aforesaid inference drawn by A.O. i5 without any finding Of a fact nor it has been corroborated with any independent evidence, In the case Of assessee no corroborative evidence or material was found during the course of search or aything has been brought On record subsequently in the course of assessment proceedings to establish that the notings made in the seized document are in relation to incurring of any illegal expenses: 11.7 The AR has contended that the notings were made in the seized document at the instance of late Shri Gotulalji Bhangdiva 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 Ao. in the course of assessment proceedings: The employees while admitting that writings belonged to them have also stated that the aforesaid notings have been made at the instance of 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 of money. 11.8 The perusal of the seized document would make W evt nt that it cannot be identified to one individual business 'enitity. of; assessee group: The transactions noted in the seized document are of mixed nature being business, personal ad investment The document being not related to anv One identified entity , the notings made cannot be held a5 unexplained credit ta be apportioned amongst the various business entities In fact even as per the A.O, 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 identified to any business entity; it cannot be held to be 75 belorging to business entity So &s to make estimated addition at the hands of various business entities on proportionate basis of turnover of such group entities, 11.9 The A.0. 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 0 pttz Ioxk I.T,A Nos.62 t0 65/Nag/2016 IT.A.Nos.274 t0 2276/Nag/2016 I,T.A.Nos.282 & 283/Nag/201G contract receipts from the Government aggregating to Rs.579 crores which is more than 62% of gross receipts. It is seen that subcontract payments include various other payments to associate concerns which are considered as receipts in the case Of associate concerns for making assessment by the same A.O. The actual payment to outside subcontractors is R5.263 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 AO: has discussed the significance of the diaries B-1 to B-65 ad has observed as under: "The analysis Of the entries in the diaries [eveal_that Q1 [geipt_side various [egeipts including teceipts from withdrawals _from bank_accounts of_group entities and sub _ Contractors Were recorded ad onpayment_side entries_of expenses like interest_payments; repayment of_Ioans; degosits into bank acoounts; house hold_ expenses; personal expenses_pavments to_various_persons in_casb ivestment in_properties etc were (ecorded_For the FY. 2006-01 to 2008-09 a 2O1l-12 the cash books adi tte ledgers mainly contain the cash receipts and the Mayme entries in cash: It I5 interesting to observe that{oome the entries in these diaries were as0 refiectett Jn 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 Bhangadiya On oath 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 pbserved that they contain probable extraneous gratifications It is evident that A.O. has n evidence on record for ay illegal gratification but observatian is made on inferences and 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 te Id. AO has recorded a finding that receipts are from bank accounts of group entities and sub- contractors: On the face of such observations; the conclusion drawn by the Id. A.O. holding that credit entries are assessable income at the hands of assessee is unjustified Onhi [0K5 kt3 I.T,A.No5,62 to 65/Nag/2016 I.T_A.Nos.274 to 2276/Nag/2016 23 I.T.A.Nos.282 & 283/Nag/ 2016 1III The AO. at para 6 Of assessment order has discussed the nature of sub-contracts; The A.0. has on enquires from bank accounts found that withdrawals made have been credited in daily cash balance of diaries. The A.O. on inference has observed that same are utilized for unaccounted payments: The AQ at page 17 has Observed that most Of the sub- contractors are name lenders and are Of meager means and some are employees The names observed are Shri Kesharsingh Rotele ad Firous Khan etc It is seen that both individuals as abserved are assessed by same A0. 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 assessee group having been accepted for assessing incame at the hands of such individuals, pavments made by the assessee group cannot be doubted as non genuine at the hands of assessee Similarly A.Q has observed names of other sub-contractors: 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 U/s 153C by the same A.O. The receipts from assessee group having been accepted for assessing the income in the hands 0f 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. AP 11,12 The A.O: at para 7 has made analysis Of diaries: marked a5 8-1 to B-65. The A.O at para 7.1 has categorically observed that receipt side contains amount withdrawn from banks of assessee group concerns and individuals. The financial year wise receipts entered in these diaries were computed at 182.52 Crores It is peculiar to note that the Id. AO. at one hand has Observed that withdrawals from bank account Of business cancerns and individuals which were found credited an left side of the diaries ad at the same time he has concluded the same receipts of credits as unaccounted income Of the group: The AR has contended that the Id. Ao. has not doubted the deposits in the bank account of assessee: Infact; they are deposit of receipts which are considered a5 income; therefore withdrawals of such amount cannot again be assessed 35 Income: 3 TvNos feat Ioht I.T,A.Nos.62 to 65/Na9/2016 I.T.A.No5.274 to 2276/Nag/2016 I,T.A.Nos.282 & 283/Nag/2016 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 like gratification paid to various politicians and 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 AO. 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 AQ without bringing the issue to & 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 On assumptions &nd is not based on any corroborative evidence on record, 11.14 The A.O. has made observation at para 7.3 as regards to the quality of work executed by the assessee group and in particular visit of A,O. to various sites where work Is executed by Bhangdiya groups 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 &5 to quality ad quantity of work executed before release of payments; In the case Of assessee successive wOrks were allotted year after year which itself demonstrates the fact that the State Government had no question &5 to quality of work executed by assessee group. 11.15 The A.O. in para 8 has discussed as t 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 ad the assessee in answer to question No.30 has explained that seized documents are details of cash flow and same has been repraduced in assessment order n page 5 During the assessment proceedings too; the zssessee 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 phi Jps: '12Ht I.T.A.Nos,62 to 65/Nag/2016 [.T.A,No5.274 to 2276/ Nag/ 2016 23 I.T.A.Nps,282 & 283/Nag/2016 on withdrawal of money from their bank accounts used to keep in trust/safe custody the amounts which are found to be noted in the seized documents; The explanation submitted by assessee was verified by the A.O. an 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 ay representative of the subcontractor or 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 assesse2 in the course of assessment proceedings has explained 35 to how notings happened to be made in the Seized document; In the case of assessee; the statement Of assessee was recorded on the seized document and in particular questions were asked as regard to the names which had similarity with the names Of Somg politicians The assessee in the statement recorded 0n oath has clearly explained that the notings made in the seized documents had nothing to do with political leaders In as much &5 such political leaders have no business transaction with any Of the business entities of Bhangdiya group: The asse5s22 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 A.O. in a span Of almost more than three and half years have brought ay 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 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 t0 affidavits submitted nor any material or evidence n record has been braught 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 35 true ad correct In this lex 6ke I,T,A.Nos.62 to 65/Nag/2016 I.T.ANos.274 to 2z76/ Nag/2016 It-A Nos-Z82 & 283/Nag/ 2016 regard the appellant has relied on the decision Of Hon'ble Apex Court in the case af 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 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 circumstances it waS not Qpen to the Reveque challenge the corectness Of the cash entries Or the statements made_bx_those deponents jn their affidavits_ 1116 The A4.0. 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 als0 assessed by the ACIT, Central Circle-2 (1), Nagpur who is also the A.O. of assessee group cases Of such sub-contractors notices under section 153d of I Act 1961 were issued and returns were submitted by such sued contractors pursuance to receipt of notice under section 153C pr" IT Act 1961. The assessments have been framed under sedton 153C of IT Act 1961 by the same A.O. wherein the income returned in respect of business income shown arising to such sub-contractors ut of receipt received from the assessee group have been accepted Thus; the AO, 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 t0 Such sub contractors are bogus; QM 11.17 The A.0. in the assessment order has observed that Some Of the sub-contractors are working as employees like drivers-supervisors Of the assessee group: There i5 no prohibition for working &s employee &d also operating &s 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 /8x9 JF I,T.A.No5.62 to 65/Nag/2016 I,T,A.Nos.274 t0 2276/Nag/2016 I.TA.Nos.202 & 283/Nag/2016 27 gain by such emplovees: 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 &f 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 M{s Andaman Timber Industries VS: Commissioner of Central Excise; Kolkata (Civil Appeal No. 4228 of 2006). The Hon ble Apex Court in this case has held a5 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 flaw which makes the order nullity inasmuch a5 it amounted to violation of princples of natural justice because of which thle assessee was adversely affected, In view Of the above we are of the opinion that if the testimony of these two witness i5 discredited, there was no material with the Department 0n the basis Of which it could justify Its action a5 the statement of the aforesaid two witness was the only basis Of issuing the Show Cause Natice We; thus, set aside the impugned order a5 passed by the Tribunal and allow this appeal" The ratio laid down by the Hon'ble Apex Court is mutatis mutandi ' applicable to the facts &nd circumstances of the present case Of the 'appellant group: 12.0 The AR of 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 on record: The AR thus contended that it i5 settled position of law that in the absence of corroborative evidence on record no adverse view can be taken in respect of 4 leke: les8 I.T_A.Nos.62 to 65/Nag/2016 IT,A.Nos.Z74 to 2276/Nag/3016 I.T,A.N0s.282 & 283/Nag/ 2016 notings found in the seized documents. According to the AR in the case of assessee for notings made; no adverse corroborative evidence was found in the cpurse af search action Or has been brought o 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 corroborative evidence on record for notings On seized documents, addition made by AO on the basis Of such notings are unjustified ad 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 i5 true that; ordinarily, when a works contract is put through Or completed bv & contractor the income Or profits derived by_ the contractor from such contract is determined an the value Of the contract a5 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 storesfmaterial Is supplied at fixed rates by the Department to the contractor solely for being used or fixed or Incorporated in the works undertaken on terms ad conditions mentioned above; the real total value of the entirg contract would be the value minus the cost of such storesjmaterial 5o supplied. Therefore , since no element of profit Was involved in the turn over represented by the cost Of storesfmaterlal supplied by the ME.S, 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 of the material/stores received for being used fixed Or incorporated in the works undertaken by them. P ELi 2) (1973) 92 ITR 90 (Mad:) CIT vs: K.S. Guruswami Gounder & K.S: Krishnaraju The Honble Madras High Court has held "if the assessee gave its tender On the definite understanding that the Omi 185l Hst8} I.T,A.Nos.62 to 65/Nag{2016 I.TA.Nos_274 to 2276/Nag/2016 29 I.T_A.Nos.282 & 283/Nagf 2016 Department concerned is to supply the required materials for the construction of the buildings, the rates quoted by him would have been adjusted 0n that basis. Therefore, there {5 no question Of the assessee purchasing the materials required for the buildings from outside and putting itself to 7 disadvantage. Admittedly; the materials supplied by the Departments had been used in the construction of the buildings ad the assessee did not; In fact; eam any profit in} relation thereto. We are not therefore; In} & position to Say that the turnover represented by the cost of the material supplied, in any 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 an authentic entries in books of account cannot without independent evidence of their trustworthiness; fix a liability upon 3 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 Sextion 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 &d Shri Shukla with the accusations leveled against them for there Is not an iota of independent evidence in support thereof: In that view Of tte 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 a5 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; In other words; the statements Of the above witnesses cannot be independent evidence under Section 34 a5 against the above two respondents. So far as Shri Advani is concerned Section 34 would not come in aid of the prosecution for anather reason also, 4 (1965) 57 ITR 532(SC) Parimisetti Seetharamamma VS: CIT 1es6 (253 E,T.A_Nos.62 to 65/Nag/ 2016 ITA.No3.274 to 2276/Nag/2016 I.T.A.Nos.282 & 283/Mag/2016 The Hon'ble Apex Court has held as under; "By 55. 3 and 4 the Act imposes & general liability to tax upon ali income; But the Act does not provide that whatever is received by a person must be regarded a Income liable to tax Inal cases In_which 2 receipt_js_souciht to _be_taxed as Income_the burdel lies upon _the Depamtment_to_prove_that it is Withi_te taxinQ prgvision_ Wbere_however 2 receipt_js_Qf_the_nature_of [come_the burden ot_providing _that itis_npt texable_because _It falls within an_exemption_proved_ by_ the act_Jies_upon_the zssessee 5) (2007) 294 ITR 49 (SC} CIT vS. PV. Kalyanasundaram In this case the Hon'ble Supreme Court has observed a5 under; "The respondent assessee vide a registered sale deed d 27h Oct, 1998 purchased certain land at Brindavan Road, Fairlands, Salem for a Sum of Rs.4.10 lakhs, During a search Of the office and residential premises of Polimer Net Work certain notes on lopse sheets allegedly in the hands of the respondent kere found ad seized by the Department; In his statement recordedd on &* Dec; , 1998, the assessee submitted that he could remember a5 to why the notings had been made The statement was further confirmed by another statement on Ifth Decs} J09& The Department also recorded the statement of the verdbr Rajarathinam On &" Dec , 1998 which too was confirmed on 1 Dec , 1998 in Which he admitted that he had in fact received a 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 a demand draft and the balance in cash. Rajarathinam however retracted from his statement on & Jan-, 1999 and filed 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 a subsequent statement recorded On 20h Nov-, 2000 Rajarathinam again reverted to his earlier portion and deposed that the sale price was Rs,34.85 lakhs, 1 Wozn The CIT accordingly deleted the addition An appeal was thereafter preferred by the Revenue made Ic53 (a33 I.T_A.Nos.62 to 65/Nag/2016 IT,A,Nos.274 to 2276/Nag/ZO16 31 I.TA.Nos.ZBZ & 283/Nag/2016 against the order of the CIT before the Tribunal The Tribunal in its order dt 6 July, 2005 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 ad could not be relied upon a5 it appeared that the total area with respect to the sale deeds ad that reflected in the loose sheet was discrepant "When the assesse did not give any explanation to the notings found ad 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 &s 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 35 to the actual sale price of the property, the implication of the contradictory statements made by Rajarathinam or whether reliance could be placed On 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 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 &nd 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 af the assessment year Or was even in & position to earn it for a decade Or more; The Tribunal took the view that although the explanation Of the assess2e WaS liable to be rejected, $, 69 of the Act conferred only a discretion on the ITO to dea} with the investment as income Of the assessee ad that it did not make it mandatory On his part to deal with the investment as income Of the a5sessee a5 Spon as the latters explanation happened to be rejected. This clearly indicates that the intention of Parliament in enacting s. 69 was to confer a discretion on the Josz /05h I.T.A.Nos.62 to 65/Nag/2016 ITA.Nos.274 to 2276/Nag/2016 IT,A.Nos,282 & 283/Mag/2016 ITO in the matter of treating the source 0f investment which has not been (satisfactorily explained by the assessee as the income of the assessee and the ITO Is not obliged to treat such source of investment a5 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 and 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 35 income of the assessee The High Court has agreed with the said view of the Tribunal We als0 do not find any error in the said finding recorded by the Tribunal There is thus no merit in these appeals and the same are accordingly dismissed No order 35 to costs. 7 Bombay High Court order in ITA No.1224 of 201I in the case of M/s 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 5q: yard Per Sq: mt; Rate offered 2,019 2,414 1,500 per sq: mt = 61,50,000 1,600 per sq. mt The Hon'ble High Court observed as under: "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 8 O2m 1655 J3 IT.A.Nos.62 t0 65/Nag/2016 I.T_ANos.274 to 2276/Nan/2016 33 I.T.ALNos.282 & 283/Nag/ ZOI6 the various evidences produced by the assessee to conclude that an amount of Rs.33 Iacs had in fact never changed hands. Consequentiy , 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 a5 on the date of search, on which the Department has charged 'on money. In the asst: yr. 1995-96, In his statement recorded under $. 132(4), $ denied to have charged any 'on-money The notings on the seized diary found from the premises of S, is the only material on the basis of which the 'AO has made the impugned additions. The AO has not brought any corroborative material On record to prove that such sales were made ad 'on-money' was received by the assessee Outside the books of account The AO has not examined aY purchaser to whom the sales of shops were effected Onus heavily lay 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 3 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 assess2e to explain the nature of 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 madeby the AO: Being based On Mere presumptions and assumptions ad without any corroborative evidence; cannot be sustained &d the said additions have rightly been deleted by the CIT (A) in all 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: K5h {056 I.T.A-Nos.62 to 65/Nag/2016 I,T,A_Nos.274 to 2276/Nag 2016 I,T,A.Nos.282 & 383 Nag/ 2016 "Statement made by assessees 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 well settled that the only person competent to give evidence on the truthfulness of the contents of the document Is the writer thereof SO, unless &d until the contents of the document are proved against a 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 L.e. CIT(A) ad the Tribunal "The explanation tendered by the assessee that the account belongs to his daughter Smt: Sarla Gupta was categorically denied by her an in view Of her specific denial, there is no justification to hold it otherwise: "If the evidence collected against a 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 recorited behind the back of the assessee and no opportunity was give him to cross-examine her: "We have ourselves examined the contents of the docurientizig are unable to draw any clear and positive conclusion on the basis Of figures noted on it; The letter 'H.S T.2' 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 assesse2 for advancing money or for taking money. Thus, in our opinion, this is a dumb document; 10) (2008) 266 ITR 619 (Del) CIT vs, Girish Chaudhary "The company ad its directors were searched on 18.01.2000 and a document marked aS Annex; A-37 was found ad seized The said document contained the following entries: Omi /e57 tss; I;T.A_Nos.62 to 65/Nag/2016 IT.A.Nos.274 to 2276/Nag/z016 35 I.T.A.Nos.282 & 283/Nag/2016 Annexure A-37 "Cash RB- Ch. (Page 13) 31.50 9.50 41.00 16.50 57,50 31.S0 16.50 48,00" The Han ble Delhi High Court following the decision of Apex Court in CBI Vs. VC Shukla (1998) 3SCC 410 has held "Similarly; the document Annex: A-37 recovered during the course Of search in the present case is a dumb document a lead uS nowhere. Thus, the Tribunal rightly deleted the addition Of Rs.48 lakhs made by the AO On account of undisclosed income on the basis of seized material 11) (2014) 39 CCH 034 (Hyd)(Trib:) Depuly CIT vs. K, Babu Rao The Hon'ble ITAT; Hyderabad Bench has held as under: "Guess work nat possible in case of search assessment framed ufs 143(3) or u/s 153'4, without ay proper material AO should have basis for assuming that expenditure incurred by assessee is out Of undisclosed income Unsubstantiated loose sheets cannot be considered as conclusive evidence to make any addition towards undisclosed income In instant case additions were made on basis of entries recarded in two note books seized Entries in note book were unsubstantiated --On basis of same AO conciuded that figures mentioned therein are to be read by adding 3 zeros &d assessed undisclosed income Other than loose paper; AO has not brought on record any corroborative material or evidence CIT(A) rightly conduded that it cannot be acted upon ad 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 u/s 131 on 23/7/2008, the assessee further admitted that the seized books contain receipts &d payments party related to him an partly related to others ad the entries were written in coded form. He I.T.ALNos.62 to 65/Nag/2016 I.T_A.Nos.274 to 2276/Nag_ 2016 I.TAA.Nas.282 & 283/Nag/2016 Jcse 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 On 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; Which 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 ad seizure proceedings; cash Rs.4 lakhs ard the two diaries were recovered but no unaccounted assets found, AQ did not mention any of such unaccounted assets found during search: In this background additions based on some entries in the diaries by affixing three zeroes for all transactions is totally unjustified There should be some reasonable matching between the income ad the assets or expenditure ; that nexus is clearly lacking on the facts a5 brought 0n record. "In the present case; the seized material (two note books marked a5 KBRJAOZ and KBR/A04 wherein certain entries 73 found recarding various transactions pertaining to the These entries In the note book are unsubstantiated and on basis the AO reached to the conclusion that the" figuies_ mentioned therein are to be read by adding 3 zeros ad inereby" he came to conclude that there is undisclosed Income In these & assessment vears. In our opinion; the document recovered during the course of search was 3 dumb document and led 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 t2 show that the any inference made by him is correct The CITIA) after taking the totality of the circumstances into consideration came to the conclusion that the addition made by the AO is not justified and the argument put forth by the assessee is supported by documentary evidence This was not 8 case where relevant Jmi (254 Kesg I.T.A.Nos.62 to 65/Nag/2016 E.T.A.No5.274 to 2276/ Nag/ 2016 37 I.T,A.Nos.282 & 283/Nag/2016 evidence had been ignored by the CITIA) a their relevant evidence has been taken Into consideration The only test that was required to be applied was whether on the facts found and 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 law: Applying this test; it could not be said that the decision recorded by the CITIA) one which could not have been arrived at by & reasonable person properly informed in law considering the state 0f evidence on record. Hence; in Our considered opinion; the CIT(A) has reached a correct conclusion in deleting the addition made by the AO on the basis of loose sheets: 12) (2005) 92 TTJ (Ctk) 464 Addl: CIT vS, Prasant Ahluwalia The Hon'ble ITAT Cuttack Bench has held "The AO stated that these notings were in the handwriting of the assessee and tterefore; he has to explain why the total of which comes to Rs: 7,55,000, were added in the income Of the assessee, 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 & estimate and not actually expended. As per our considered view, additions based on chit papers and presumption of AO could not be sustained in the absence Of any corroborative material or evidence brought on record, supporting i "As no corroborative material has been brought on 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 TTJ (Ranchi) 422 ACIT vs: Ashok Kumar Vig 45e {cco I.TA.Nos.62 to 65/1 Nag 12016 IT,A.N0s.274 to 2276/Nag/2016 I.T.A Nas,282 & 283/Nagf 2016 Held: "The CIT(A) has taken & clear-cut view that the AO did not verify 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 is 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 canclusion, under these circumstances; would be tat the findings of such & 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 is not disputed However; there is no presumption about the earning of income The assessment is made under Chapter XIV-B. The AO cannot make addition 0n the basis Of incomplete entries; The onus rests on the Revenue to establish that the asse55ee was In receipt of money then the onus would automatically be shifted to the assessee to prove that the money has been disclosed in the account or the same3 not liable t0 tax In the present case in hand, the AO hast been able to demonstrate with adequate evidence that assessee received the amounts in two years &s alleged The entries as recorded in 'PKC-60' do not clearly reveal Mat 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 zssessment under this 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) ad Kollipara Subba Rao VS, ITO (1990) 32 ITD 668 (Hyd: ) distinguished 14) (2004) 91 TTJ (Del:) 938 N.K_ Malhan vS. Deputy CIT Held: Opm [06 | K3m IT,ANos.62 to 65/Nag/2016 I.TA M0s.274 to 2276/Nag/Z0IG IT,A-No5.282 & 283/Nag/2016 39 "The document found &nd seized might raise strong suspicion; but it could not be held a5 a conclusive evidence without bringing some corrobrative material on record. Heavy onus Iay upon the Revenue to prove that the document gives rise to undisclosed investment by the assessee "As regards interest;, from mere Jottings or calculations it cannot be said that there was ay liability incurred by the assessee & 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 &d particulars thereof were available before them Proof of payment has alsp not been found In case the calculations were made for interest; they were merely the cost estimates but cannot be said 25 a payment in reality or & liability Incurred by the assessee In any event the burden was 0n the Revenue t0 show that the documents represented undisclosed income Of the assessee Without bringing any carroboratory evidence by the Revenue; this burden cannot be held to have been discharged. Under Such peculiar circumstances ad the facts .as emerging from record, the entries of Rs.1,65,008 could not have been treated a5 undisclosed income of the assessee for the block period The addition so made I5, therefore; directed to be deleted" "The document found &nd seized might raise strong suspicion; but it could not be held a5 a conclusive evidence without bringing some corroborative material an record, The document contained only the rough calculations and was silent about any investment: On the basis of such a dumb document; it cannot be said that there were investmlents made in fact by the assessee Heavy onus lay upon the Revenue to prove that the document gives rise to undisclosed investment by the assessee, This onus has not been discharged. Accordingly no addition of undisclosed income could be made on the basis of such & document". 15, (2004) 89 TTJ (Cal) 917 JCIT vs. West Bengal Trading Agency Held: Ph Hexsz " [063 IT.A,N0s.62 to 65/Nag/2016 I.T.A.Nos.274 to 2276/Nag/ 2016 I.TA Nos.282 & 283/Nag/ 2016 "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 and, 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: "Presumptian under 5. 132(4) cannot be used in the assessment proceedings to make &n 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 $ by the AO in the course Of assessment proceedings was fatal ta the case of the Revenue The seied; documents were alone not sufficient to draw any definite; conclusion regarding the existence of undisclosed incomt ELLA ) Onmi The corroboration could have come in the form examination Qf V and 5 The purchasers Of the property from the assessee could have been examined to find out if they had paid consideration over and above what has been recorded by the assessee in its books of account The additians made cannot be sustained in law; Shivani Properties (P) Ltd VS: Dy.CIT (ITA Nos 1957/Del/1999 ad 4100/Del/2001, dt 2gth Dec;, 2006} relied 0n; "It i5 observed that the writing made in the loose papers were treated by the AO. as the actual investment made by the assessee ad the actual receipts of the sale of properties; We find that the said documents Annex: AI pp: 2 and 29 are loose papers and not any booksof account; Further, in the said document date-wise break-up of the alleged payments made Or c{z krt IT.A.N0s.62 to 65/Nag/2016 LT.A.Nos.Z74 to 2276/Nag/2016 41 ITANos,282 & 283/Nag/ 2016 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 and actual proceeds received by the assessee. No corroborative sale evidence 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 AO namely Annex: Al Pp. 21 ad 29 did give out certain the four projects that the assessee had figures regarding undertaken in the course of his business" "The question that would fall for consideration is 25 to whether this correlation alone was sufficient ta 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 0f the assessee firm; At the time af search the statement af the partner was recorded He disowned any knowledge about the seized documents' The Hon'ble Supreme Court in 3 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 $. 132(4) cannot used in the assessment proceedings to make an be assessment of income "We are of the view that the seized document Al Pp. 2I and 29 not sufficient to draw any definite conclusian were alone regarding the existence of undisclosed income; It was therefore not possible to draw ay inference o the basis Of this document corroboration; As already stated the without proper corroboration could have come in the form Of examination of Mr: VK Narang and Mr: S,S. Sodhi The property could have been got valued by the DVO to find out the real investment in this The purchasers of the property from the assessee property: have been examined to find out if they had paid could consideration over and above What has been recorded by 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 on-money Was alleged t? 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 From the fat purchasers thus was based On mere on-money 423 t3F [oEH I.T.A_No5.62 to 65/Nag/2016 [T.A.Nos.274 to 2276/Nag/ 2016 I.TA-Nos.282 & 283/Nag/ 2016 surmises ad conjectures &d In the absence of any evidence to corroborate the same; the addition made by him presuming the receipt Of on-money; in our opinion was not justified, In that view of the mater; we set aside the impugned order of the learned CITIA) confirming the said addition and direct the AQ to delete the same: 17) (1997) 59 TTJ (Mumbal} 574 ACIT vs: Shailesh S. Shah Held: "As a result of search at assessee's premises on 26th August; 1987 certain loose papers were found ad seized and one of those loose papers which has been marked 35 page No: 44 which has been responsible for creating the controversy under appeal before Us has te following details: (Details are & per the Entries repeated on page No: 3 & 4 of the order )" "We are of the opinion that the AO has not invoked any Of the deeming provisions Of sS. 69 to 69D &nd, therefore;it is clear that these figures have been considered a5 assessees mcome, under the substantive provision Of the IT Act Underyte' substantive provision of IT Act; it is nOW settled law that evry receipt is not necessarily or cannot necessarily be Incorhe Iq e hands Of the redipient and, therefore, the question whether any, particular receipt is income or not depends on the nature of the receipt and true scope a5 well as the fact of the relevant taxing provisions settled proposition, it follows that Revenue can tax only those receipts; which; first have been proved to be income in the hands of the recipients ad secondly, the same have to be proved 75 non-exempt from tax: We are, therefore; Of the opinion that it is Revenues Onus, before assessing any receipt a5 taxable income; to proved that the receipt in the hands of the recipient is Income &nd this can be proved or established only on the basis of some material or 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 ad circumstances of the case 35 weli a5 the settled principles of law, we are of the {665 He3 I.TA.Nos.62 to 65/Nag/3016 I.T,A.Nos.274 t0 2276/Nag/2016 43 I.T.A.Nos.282 & 283/Nag/2016 that the conclusion arrived at by the AO was based opinion purely an suspicions and the CITA) was justified in deleting the additions having been made only on suspicions: The order of the CITTA) is upheld &d the revenue's appeal i5 dismissed: As to Departmental Representative plea relating to regards consideration of assessee's explanation by the CIT(A) submitted before him, without giving opportunity to AO, We have found that the CITIA) has not based his decision on that explanatiom rather had accepted the assessee's plea made before the AQ to the effect that the figures on loose paper No.44 were rough working of the firm. This plea i5, therefore, rejected. 18) (2008} 5 DTR (Jab) (Trib) 202 ACIT VS. Satyapal Wassan The Honble_Irbunal b2s_held_as uder: "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 it 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:" "The component which enter into the concept of a tax are well known; The first is the character of te 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 ad the fourth i5 the measure Or value 0n which the rate will be applied for computing the tax liability. If thase 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 Iegislation scheme defining ay of those components of the levy will be fatal to its validity. The first component shows that it is necessary to find out the nature Of transaction which Is the source of generating income It has to be clearly spelt Out 35 to whether 3 particular transaction Is of income yielding nature a5 per IT law. 6? PEl 3 3 1 Ie24 1o66 I.TAA.Nos.62 to 65/Nag/2016 I.T_A.Nos.274 to 2276/Nag/2016 I.T.A.Nos.282 & 283/ Nag/2016 Merely bexause 3 document is recovered from the body Of a person does not automatically lead to the inference that it belonged to him. It Is only for certain purposes that presumption under $ 132(4A) has been enacted and not for all purposes including the assessment Further; this presumption {5 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; mer statement of the asses5ee 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 a question of law. "The document andjor 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 tp whether they are in thousands Or 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 done Therefore; 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 of income tax Can be levied": "The above discussion also leads uS to infer that & charge on the basis Of document can be Ievied only when the document is & speaking one. "The speaking from the document should be koud;, clear and unambiguous In respect of all the four components as described above: IF jt is not SO, 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 & document found during the course of search Is open to more than One possibility of interpretation ad does not prove conclusively that 0 3 Jvi 1o67 {f5 ET.A.No5,62 t0 65 Nag/2016 I.T.A.Nos.Z74 t0 2276/Nag, 2016 45 ET,A.Nos.282 & 283/Nag/2016 ay 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 Is clear that the document must unmistakably reflect the transaction without having any second interpretation "The crux of these decisions is that & document found during the COurse of search must be 3 speaking one and without any second interpretation; must rerect ali the details about the transaction of the assessee in the relevant assessment year. Any gap in various components as mentioned in 5. 4 pf 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 a result We hold that document No.7 is a non-speaking document" 13.0 On perusal of the assessment orders of various entities Of 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 variqus group concerns for the purpose of taxable profits: Income fron Contract Business Assessed By ADin % Particular AY AY AY AY AY AY AY 2006-07 2007-08 2008-09 2009-10 2010- 2011- 2012-13 11 12 Mfs. M G Bhangdiva 11,7g0 41.2796 35.60% 18.6090 27,46% 49,5090 MKS Constro Venture P, Ltd: 9,3490 Ns Mahendra Construction 10.7890 43.13% 25,449 11.040 21.7906 33,050 27.73% Ws- Mahendra Const; & 43.53%0 73.4490 17.69% 41.8106 16.039 M.G; Bhangdiya JV 11.979 23,39d6 26.7696 26,2606 15.2290 13.94% Ms. KM, Bhangdiya MKS Acme Build P Ltd 10,2806 Mfs. M G Bhangdiva and 66.5394 11.98%0 27.8390 O.0%o Hitbhav Engg JV Ms M G Bhangdiya and S5 54,820 129-9206 13.189 PATIL JV MS K M Bhangdiva JV 25.289 39.529 10.079 10.00%0 10,009 Mitcon Infra Project ? Ltd Consolidated far AII Entities 12,3606 47.010 74.369 18.5290 34,250 49.979 44.5990 14.0 It 15 quite manifest from the above that the income assessed by the Id. AO for the purpose Of taxation in respect of variqus group concerns, engaged in the same business 35 contractors; is quite at variance. The Iincome assessed by AO a5 I.T.A.Nos.62 to 65/Nag/2016 I.T.A.Nos.274 t0 2276/Nag/2016 I.T,A.Nos.282 & 283/Nag/2016 (cc8 percentage receipts for various years varies from 9.349 to 129.9296. 15.0 In view Of the huge variance in the income assessed a5 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 AO in the hands of variQus entities of the group, including the present appellant The AR thus has contended that income assessed by the AO in the assessment arder is merely an estimation which is quite at te 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 Honble ITAT; Nagpur Benchy Nagpur In} the case of the appellant and various group entities in ITA No; 268, 269 & 285/Nag/2012 dated 03.04.,2013. The AR Of the appellant in this regard, has submitted that a survey action was conducted Or 17.02.2009 in the Bhangdiya group of cases; wherein the Similar situation a5 payments to sub-contractors was disputed ad doubted by the AO. 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 groul on 19.07.2011. The AR has pleaded that the Hon'ble ITAT after having considered the similar activity Of business Ti deficiencies in sub-contract payments found during the sunvey: action conducted on 17.02.2009 has decided the appeals for AY 2006-07 to 2008-09. The Honble ITAT, Nagpur Bench, Nagpur after considering the impounded material has directed the AO t adopt the net profit @ 129 &s against net profit adopted by AO 14%. Therefore; the AR of the appellant vehemently contended that the nature of defects found in the course Of search action are similar to that of the evidences impounded in the course of survey action therefore; the net profit in ay case should not exceed @ 1296 35 adjudicated by the Hon 'ble 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 is seen that the entire addition made in the assessment framed is based 0n the seized documents inventorized as B-1 to 65, The A.O. has analyzed the said documents a has found that the various amounts shown a 1 Omi 10 63 J08t I.T,A.Nos.62 to 65/Nag/2016 IT,ANos.274 to 2276/Nag/2016 47 IT.A-No5,282 & 283/Nag/ 2016 in the said documents are withdrawals from bank receipt accounts of assessee a5 well as from the bank accounts of sub contractors It Is for this reason the conclusion has been drawn by A,O. that payments made to sub contractors are bogus. The AO, had examined 21 sub contractors as is evident from the assessment order ad had identified a Sum Of Rs, 54.40 crores till of assessment t0 be credit entries in the seized date document having nexus with withdrawals from the bank accounts of sub contractors. In the assessment order A.O. has computed total addition to be made at Rs.182,52 crores being cedits in the seized documents; The sum Of Rs: 54,40 crores was added at the hands of respective assesses Iin the group on the basis of credits appearing in the bank accounts Of sub contractors. A Sum Of Rs; 128,12 crores wa5 assessed at the hands of various business entities Of the group in ratio of business receipt: The methodology adopted by AO. while distributing the addition on estimate basis itself indicates that the books of account have not been accepted ad have been rejected while determining the assessable income at the hands Of asses5e8. In the case of assessee In regular assessment proceedings books of account were rejected and income WaS estimated a5 net profit percentage of business receipt at the hands of various business entities of assessee group In the of remand proceedings; the A.0. had made further course exercise to identify the credit entries in the diary having nexus with withdrawals from the bank accounts of sub contractors The A.O. 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 amountyname 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 tp demonstrate that the credit entries in the seized document are in relation to amounts withdrawn from the bank accounts Of sub contractors It i5 Seen that the work executed by assessee group is mainly in relation to work af various government organizations: The State Government has due process of verification a5 regards to quality and quantity of work executed before release Of payment: In the case Of aSsessee the work Is allotted by Government year after This itself is demonstrative for the fact that the State year: Government has no question &5 to quality ad quantity Of work executed by assessee The execution of work is not disputed by A.O: In the case Of assessee work executed Is undisputedly I.T.A.Nos-62 to 65/Nag/2016 ITA Nos.274 t0 2276/Nag/2016 I.T,A-Nos.282 & 283/Nag/2016 tebg 1oF0 through sub contractors; In view of payments made by assessee to Sub contractors cannot be outrightly rejected a5 is being attempted by the Id. AO. 16.1 On perusal of various observations made in the assessment order as regard to seized documents inventorized a5 B-1 to B-65, it is evident that the aforesaid documents do not pertain to any one of the business entities of assessee group: The aforesaid 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 af assessee's diary has been concluded by A.O: to be out Of withdrawals from the bank account of assessee group 35 well as from the bank accounts of sub contractors. In the assessment order a5 weli a5 in the remand report submitted by AO. there Is no allegation that the receipt side of te diary contains ay receipt over ad above in respect to activities of business dedared by assess28 in the return Of income: In other words the credits appearing are in respect to activity of execution Of the-various works for Irrigation Department and other government agencies: 16.2 In the case of assessee much prior t0 the date 0f search an action 133A of IT Act 1961 has taken place 0n 17/2/2009. In the case Of assessee pavments made to variou)tah contractors was & matter of dispute by the A.O. puruan [o survey proceedings. A.O. had alleged in the course & Sc Vey; proceedings that the expenditure claimed on account of 'payitent; to sub contractor is bogusfinflated The regular assessments have been framed in the case of assessee for the assessment years 2006-07 to 2008-09 wherein in the paymerts 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 for above stated assessment years in terms af provisions Of section 153A of LT. Act 1961. APP EL: 2 Ioom 2 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 |otl kea IT,A.Nos-62 to 65{Nag/ Z016 I.T.A.Nos.274 to 2276/Nag/2016 49 I.T,A.Nos.282 & 283/Nag/2016 in whase handwritings the seized documents are employees found to be written: 16.4 The analysis af income assessed by the AO in percentage terms in the various years falling in the block period as under: Incqme from Contract Business Assessed By_AQin % AY 4Y Ay AY AY AY Particwlar AY 2007- 2008-09 2009- 2010- 2011- 2012-13 2006-07 08 10 11 12 11.799 41.270 35.60%0 18.609 27,4600 49,5016 Mfs M G Bhangdiya 9.3400 MKS Canstro Venture P. Ltd. 43.1306 25,449 I1,046 21,7996 33.05%0 27.7396 Ms, Mahendra Construction 10,7806 Mfs Mahendra Cons; & M.G: 49.5396 73.44%0 17.69m 41,81% 16,0396 Bhangdiva Jv 11,9700 23.3990 26.76%6 26.26W4 15.229 13.949 Ms, KM Ahangdiya 10.289 MKS Acme Build P Ltd M/s. M G Bhangdiya and Hitbhav 66.5390 11,9890 27,830 O.QDea Engg Jv Mjs M G Bhangdiya an 55 54.8206 129.92% 13,18% PATTL JV 25,289 39.5206 MS K M Bhangdiya JV 10.079 10.0Q% 10.0Q% Mitcon Infra Projert P Ltd 47.0106 74,3680 18,520 34,2596 49.9740 44.5990 Consolidated 12.369 The income assessed in various years by the Id. AO varies from 9,34%6 tp 129.929 and brings in absurdity in income determined with reference to business receipts for various years under consideration The above analysis also fully justifies, the determination of income should be at net profit rate Of receipts at the hands of appellant graup. 16.5 The perusal of the assessment order would make it evident that the source of income of the various business entities the various group is only in respect to execution of Of and it has no other major activity Of government contracts business where from the income is derived or gererated, The notings found in the Seized documents are part of the gross receipt received from tte government department: The various noting in the seized document are part Of the gross receipt of contract received by group entities is not disputed: The inference drawn by A.O. i5 that the entries in the seized document are by inflating the sub contract payments which have been utilized for Illegal expenses: In the Case Of assessee no incurring 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 that the I.T.A_Nos.62 to 65/Nagf2016 IT,A.Nos.274 to 2276/ Nag/2016 IT,A,Nos-282 & 283/Nag/2016 kzp 18t? notings made in the seized document are in relation to incurring of ay Illegal expenses: Thus, the AR has pleaded that the explanation submitted by assessee 35 regard to movement of money noted by late Shri Gotulaljee Bhangdiya is plausible ad reaspnable explanation which has been disbelievedjdiscarded for no valid justification. I find substantial force in the submission of appellant; 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 , personal ad investment: The document being not related to ay one identifled entity; the notings made cannot be held &5 unexplained credit to be apportioned amongst the various business entities In fact; even 35 per the A.O. 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 identified to any business entity; it cannot be held to be 75 belonging to business entity S0 &s to make estimated addition at the hands Of various business entities in proportion to the turnover: 16.7 The AO, at para of the as5essmehf order has observed that the asses528 group for 2006-07 to 2012-13 has debited Rs.361 Co towards sub-contract payment out Of 9s contract receipts from the Government totaling , to Rs.579 Crores which is more that 62% Of gross receipts. It {5 seen that sub-cantract payments include various payment to associate concerns which are considered 75 receipts in the Case Of associate concerns for making assessment by same AO. The actual payment to Outside sub-contractors is Rs.263 crores only which is 459 Of gross contract valve The finding Of A.O. to 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 Bl to B65 and has observed &5 under: 18t3 I.T.ANos.62 to 65/Nag/2016 IT,ANos.274 to 2276/Nag/2016 51 IT,A.Nos.282 & 283/Nag/2016 "The analysis of the entries in the diaries reveal that_on receipt Side various [eceipts including _ receipts fron withdrawals from bank accounts of groupentities and sub- gontractors were recorded and_on_payment _side_entries of expenses like interest payments repayment of_loansz deposits into bank accounts house hold expenses personaL expenses_payments_to_various_persons in casbz investment_in_properties etG_were _recorded For the F Y 2006-07 to 2008-09 ad 201l-12 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 als0 refected in the regular bopks of accounts maintained by the assessee group: In the same para in answer to question No. 30 from the statement of Shri Mitesh Bhangadiya recorded On oath On 20/07/2011 it is evident tat it is stated that seized documents are detalls 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 i5 made On inferences and presumption The observation at para 51 infact clearly explain the nature of entries found noted in the seized document to be in the nature Of cash flow. The AO. has als0 recorded that receipts are from bank accounts of group entities and sub- contractors On the face of such observation conclusion of AO. holding that credit entries are assessable income at the hands of assessee &5 unexplained credits is unjustified 16,9 The A.O, at para 6 of assessment order has discussed the nature of sub-contracts. The AO. has On enquires from bank account found that withdrawals made has been credited in daily cash balance of diaries. The AO. on inference has observed that same are utilized for unaccounted payments The A.O. at page 17 has observed that most of the sub-contractors are name lenders &d are of meager names and some are empigyees The names observed are Shri Kesharsingh Rotele &d Firous Khan etc; It is seen that both individuals as observed are assessed by same A.O. The income from sub-contract work done fpr assessee has been accepted in the assessment framed us 14303)/153C of LT Act 1961 on the same date: The receipts from assessee having been accepted for assessing income at the keze [oth I.T.A.Nos.62 to 65/Nag/2016 I.T,A,Nos-274 to 2276/Nag/2016 L.T,A.Nos.282 & 283/Nap/2016 hands Of such individuals, payment made bY assessee cannot be doubted as non genuine at the hands of assessee Similarly AO. has observed mames af other subcontractors; Out Of names Of Sub-contractors observed Shri Sanjay Malani, Shri Chintaman M. Nakade; Shri Vishal Rachalwar; ShriDwarkadas M, Bhutada, Shri Dnyaneshwar Meshram and Shri Suresh Masram have been assessed ufs 153C by the same AO. The receipts from assessee having been accepted for assessing ircome at the hands Of sub-contractors; payment made by assessee cannot be doubted as non-genuine at the hands Of assessee 16.10 The A.O. at para 7 has made analysis of diaries marked on B1 to B65. AO. at para 7.1 it i5 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 strange that A,O. at one hand observed that withdrawals from bank account Of business concern and individuals is credited on left side of the diaries ad at the same time he concluded the same a5 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 a5 income withdrawals of such amount cannot again be assessed' ,85 income: This clearly shOwS incorrect ad unjustified aproach for determining the income: 8 16,11 The A.O. has Observved in various part of assessment: order that amount withdrawn from diaries Is utilized for unaccounted payment &r unallowable expenses like gratification paid to various politicians and 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 prabable extraneous gratification which supports the submission made that assessee has not paid any illegal gratification. The conclusion of A.O: {5 On assumptions and presumptions which are unjustified The A.O, although has computed payments out Of seized documents Out has not brought on} record any corroborative evidence to support his inference/ conclusion drawn: [Fs ti I.T.A.Nos,62 to 65/Nag/2016 IT,A.Nos.274 tD 2276/Nag/ 2016 53 I.T.A.Nos.282 & 283/Nag/2016 16.12 The working made by A.Q. at page 36 to 38 about analysis of payment out of seized documents are just adverse inference drawn on assumptions &d is not based On any corroborative evidence On record. 16.13 The A.O. at para 8 has observed a5 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 assesse@ was recorded On 20/07/2011 ad assessee has explained in answer to question No.30 that seized documents are detalls 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 docurents 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 monev from their bank accounts used t keep in trust-safe custody the amounts which are found to be noted in the seized documents; 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 i5 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 contractars 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 ay 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 &s to how notings happened to be made in the seized document The statement a5 made at the time Of search continued to be the same in the course of assessment proceedings that the seized documents are in respect to movement of cash with regard to activity of business, personal expenses ad investments made by assessee. The Investigation Wing of the Department nor the A.O. in span of almost more than three ad half years have not brought any evidence On record to show that the various notings made in the seized documents are In relation to any illegal AP Pele 2 LeZtL 1676 I,T.A_Nos-62 t0 65/Nag/ 2016 I.T.A.No5.274 to 2276/Nag/2016 44 I.T.A.Nos.282 & 283/Nag/2016 26 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 Bhangdiva. The various persons who had submitted the affidavits have not been Cro5s examined subsequent to affidavits submitted a nor ay material or evidence on record has been brought to dislodge the averment made in the affidavits. The contents of the affidavits have gone unrebutted and have to be taken 35 true ad 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 pr 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 and 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 circumstances it WaS nat open to the Revenue tz challenge_ the corectess of the_cash entries Or the Statements madeby those deponents in their_afidavits; PEL_ 1 0 9 16.14 The A.O. has observed that the various sub contractors in the case Of assessee are bogus: The A.O. has listed the names Of such sub contractors &t para 9.1 of the assessment order; It i5 observed that the aforesaid sub contractors are also assessed by the ACIT, Central Cirdle-2 (1), Nagpur who Is also the A,O. %f 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 ntice under section 153C of LT; Act 1961. The assessments have been framed under section 153C of LT. Act 1961 by the same AO. wherein income returned in respect to business income shown arising to Such sub contractors out 0f receipt received from the assessee have been accepted. The A.0. 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. [ctF 173 LT.A.Nos.62 to 65/Nag/2016 I.T_A.Nos.274 to 2276/Nag/ 2016 53: I,T.A.Nos.282 & 283/Nag/2016 Considering the entire evidence on record ad fact that in the case Of assessee boaks of 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 0n the basis Of business receipts and that would be most appropriate and reasonable manner for determination of income at the hands of assessee group: The addition made by Ao. by referring to seized diaries is unjustified and unsustainable for various reasons observed 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.O. has made addition during the block period to the tune of Rs.182.52 crores The addition made is over and above Income Offered by assessee In the return as additional Income of Rs,26 crores offered during the course of search ad Rs. 1l 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 &s to justify assessment of such huge income at the hands Of assessee The addition made by AO. of such huge income cannot be held to be justified on principle of real income a settled by Hon'ble Apex Court The addition made by A.Q. thus i5 clearly excessive and unreasonable Ppe 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 creditars &d other disallowances: In the appeal flled by such assessee before CIT (Appeals) it was held that the income needs to be determined at the estimated percentage Of business receipt towards civil construction and accordingly it was directed to assess net profit at 89 of the contract receipt; The department challenged the matter before the Hon'ble ITAT seeking to sustain specific additions on account of bogus labour payments and bogus trade creditors, The appeal filed by Hezz JoF& I,T.A.Nos.62 to 65/Mag/2016 IT.ANas,274 t 2276/Nag/2016 I.T,A.No5.282 & 283/Nag/2016 the revenue was dismissed by Hon ble ITAT in ITA No: 93/Nag/2012 vide order dated 01/05/2013. The appeal filled 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 ratip 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 ad Group; &n action under section 1334 Of IT; Act 1961 was also taken by the Department &n 17.02,2009 prior to the date or search. In the course of survey under section 133A Of IT 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 t0 discussion with the A,0. &d after considering the fact that no complete record was available with assessee a5 well as With the subcontractors executing the work; it wa5 agreed to offer additional income at Rs: 11 crores amongst the various business entities the Bhangdiya group for the assessment years 2006-07 to 2009-10. The aforesaid assessment years covered by survey action are also forming the part of the block period which is assessed in terms of proVisi? af section 1534 of IT Act; 1961. In the case of the assess group; prior to the date of search , regular assessments: ware' completed up to assessment year 2008-09. In the regtilar assessments framed the A0 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 ad various defectsfmistakes as found during the course Of 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; action under section 132(1) of IT: Act; 1961 had taken place at the business premises of assessee group on 19.07.2011. The CIT(Appeals) after noticing the fact as regard to action under section 132(1) of I.T Act; 1961 at the premises of assessee ad considering the additional disclosure made by assessee group in [ety k7+ L.T_A.No5.62 to 65/Nag/2016 I.TA Nos.274 t0 2276/Nag/2016 57 I.T.A.Nos.282 & 283/Nag/2016 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 Of assessee In} appellate proceedings was challenged before Hon'ble ITAT, Nagpur Bench, Nagpur: The Hon'ble ITAT; after considering the entire material facts ad 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 0f Bhangdiya group: 21.0 It is thus seen that prior to proceedings having been initiated under section 132(1) of LT Act 1961, &n 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 IT Act 1961, & lump-sum amount was Offered for taxation in respect to various assessment vears which are also forming part of block period for the search In the case Qf assessee books of account were not accepted ad were rejected in assessment framed under section 14303) of LT: Act 1961. It is a fact on record that books of account had not been accepted for the purpose of framing assessment at the hands Of assessee In view of the above verification of entries with reference to regular bpoks of account looses relevance and has no bearing for determining assessable income in the hands of assessee. p} 14* F 3 'Vnn 22.0 In view of the above facts and circumstances and keeping in view of various infirmities and various judicial decisions as discussed in foregoing paras of this order ad to meet ends Of justice; to my considered opinion it would be fair and reasonable to adopt the net profit 16% 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 on the guidelines determined by the Hon. ITAT, Nagpur Bench, Nagpur in ITA No-268, 269 8 285/Nag/2012 vide order dtd.07.03,2013 on the similar activities of business a5 weli a5 defciencies found in the case Of the appellant during the course Of survey action conducted at the premises of the appellant group on 17.02.2009. The relevant facts a5 emanated from para- 4 of the order of the Honble ITAT in the case of the appellant are a5 Under: 122 1080 L.T_A.Nos.62 to 65/Nag/2016 I.T,A.Nos.274 to 2276/Nag/2016 I.T_A Nos,282 & 283/Nag/2016 "

Brief facts of the case are that & survey ufs. 133A of the Income Tax Act; 1961 was carried out in the business premises Of the asseSS85 and his associates On 17.02.2009. During the course of survey operations it was found that most of the bills, vouchers ad other evidence in support of the entries in the books Of account like labour charges; materia} 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 133A and ujs. 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 0f the payments to third party sub contractors and In respect to other deficiencies; the assessee admitted additional income In group Cases Of Rs: 11 crore and proportionately were allocated between all the assessment years relating to these four assessee: Far the year under consideration Le for assessment year 2006-07 in case of Sri Mithesh Bhangadiya, the additional income was Offered at Rs.23,97,361/- besides the income shown originally at Rs.23,63,910/-, Due tax was paid before the issuance of notice under Section 148 &s admitted by the AQ in para 2 Of his order The important contents Qf submission recorded On 24-02-2009 ad 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 &nd omissions and to cover uP ali such discrepancies we have made out mind to offer additional income over and 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 Qn 13-3-2009, it was answered that the sub contractors were awarded the sub contract work by Our firms 35 per contract notes and the nature of Sub contractors has been that labour charges and machine hire charges. The sub contractors by and large Illiterate and therefore; telr books of accounts found to be incomplete; without maintenance Qf any bills and vouchers, The expenses incurred by our firm has been 0n the basis of the P ELi, 6 Qm /231 7g LT,A.Nos.62 to 65/ Nag {2016 I.T.A.Mos.274 to 2276/Nag/2016 59 I.T.A.Nos.282 & 283/Nagf 2016 5o called vouchers raised by them ad 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 vears. Accordingly ; it was submitted that there were certain discrepancies and anmalies in the Sub contract accounts, in books Qf accounts for assessment years 2006-07 to 2009-10. The assessee declared the additional income of Rs. 11 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; 1l 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 AQ noted that the assessee has shown various expenses under the head labour & wages; machine hire charges, site expenses and Sub contract expenses etc an very higher side; which are not supported by valid vouchers Neither any further evidence was filed; It Was alsp observed by the AO that since there are various deficiencies in accounts Qf sub contracts and the assessee has offered & sum Of Rs. 23,97,361/- on account of discrepancies in respect to sub contract therefore; he proceeded to make further addition On account Of various deficiencies L.e: in absence Of bills ad vouchers; excess claim towards machinery hire charges; veriication Of applicability of provision Of Section 194C ad denial of alleged sub contractors regarding the sub contract given by the assessee: AlI 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 14563) of the Act; the profit of the assesse2 has to be estimated reasonably. The AQO also observed that the assessee has declared net profit ratio of 696 and 7% of the total turnover in assessment vears 2006-07 & 2007-08. After offering additional income of Rs.23,97,360/- for assessment year 2006-07, the results in revised net profit comes tp 12.8706 Of the contract receipts, However, this net profit was found by the AO on Yp heex [681 I.T,A,Nos.62 to 65/Nag/ 2016 I.T.A.Nos-274 to 2276/Nagf2016 I.T_A.Nos.282 & 283/Nag/2016 lower side: The AO noted that in one of the group case namely, Mfs, Mahendra Construction & MG Bhangadia (JV) who had declared additional income of Rs. 1,57,47, 760/- in tte Assessment Year 2007-08, which gives a net profit ratio of 13.84% 0f the net cantract receipts In view of these facts the AO adopted 14% net profit Thereafter the AO completed the assessment and made addition Of Rs. 30,12,722/- against additional income shown by the a5sessee at Rs: 23,97,360/-, which resulted further addition of R5.6,15,362/- 23.0 On the above material facts, the matter was carried Dver to CHT (A); Nagpur who has confirmed the net profit adopted @ 14% by the AO on the gross receipts emanated from the records, On subsequent appeal the Hon'ble ITAT, Nagpur Bench, Nagpur after considering the above material facts, has directed the AO to adopt the net profit @ 12% of the gross receipts, The relevant finding Qf the Hon'ble ITAT, Nagpur Bench; Nagpur in the case of the Bhangdiya group On the identical material evidences impounded during the survey action is reproduced below for better appreciation of facts:

After considering the submission and perusing tpe material On record, we find that the assessee deserves succeed in his appeal in part We noted for the yed Yunder consideration ie for assessment year 2po6-07* tis assessee's NP rate comes to 12.87%, for asseahent yeae 2007-08, the assessee'5 NP rate comes to to5396, respectively: We also noted that if the NP rate Of all the concerns are taken into consideration; then it is seen that ali the a55e5525 have shown government receipt at Rs.258,55,37,850/- ad income On these contracts have been shown by these assessee at Rs.6,49,57,111/- which gives & NP rate Of 6.38%. The assessee has Offered additional income declared during the survey at Rs: 11, 03,85,877/-, which gives & NP rate of 4.279 and the total NP rate in all these concerns comes to 10.65%. Of course; the additional income Of Rs. 11 crore Or odd was segregated proportionately On the basis Of contract receipts in the hands of each concern In case of Mfs Mahendra Construction & M,G Bhangadia (JV) the MP rate comes to 13.849 i.e for assessment year 2007-08 ad this rate has been adopted by the AO and has applied t023 I.TA.Nos.62 to 65 Nag/2016 I.T,A.Nos.274 to 2276/Nag/2016 61 IT,A.Nos.282 & 283/Nag/2016 the NP rate of 149 in all the years in case of all these aSsesses on whom & survey was conducted In View; this approach of the AO was not correct approach. In case Of M.G Bhangadiya; the NP rate of three years come to 9.87% whereas in case Of other assesses i,e Sanjay Heda, M/s Mahendra Construction & M.G Bhangadiva (JV) the NP rate comes to 9.50%6 and in case Of Mls Mahendra Construction & M.G Bhangadiya (JV) the average NP rate of three years comes to 1L.28% ad in case Of MJs KirtikumarBhangadiya , the NP rate comes to 8.72% and in case of MG, Bhangadiya a M/s Mahendra Construction & M.G, Bhangadiya (JV) the NP rate comes to 6.12%. In case of MG. Bhangadiya &d 5. 5. Patil & MG Bhangadiya, the NP of three years comes to 1L.55% As stated above; the average NP rate Of all the assesses for all the three years comes to 10.65%. Therefore; in our view; 2 rationai approach should have been adopted by the AO or by the learned CIT (A) For one case ie Mfs Mahendra Construction & M.G, Bhangadia (JV); the NP rate Was 13,84% and if this rate is applied in al other Cases, which in our view, Is not justified. However, there is also no dispute that there were 50 many discrepancies in maintaining vouchers; bills; sub contracts accounts ad other heads; which were not verifiable; therefore; the and his group came forward to offer assessee an additional income Of_ Rs: 11 crore ad the same has also offered ad due tax has been paid. Since as stated above; there are certain discrepancies; we are of the view; that if NP rate of 12% i5 adopted instead of 149, that will meet the end of justice: We made it clear that where NP rate shown by the assessee in any year is more than 12% then the more NP rate shown by the assessee has to be taken a5 assessee has declared himself and In other years where NP rate shown by the assessee Is lower than 12%, then 12% NP rate has to be taken: The AO will recomputed the income accordingly. For the sake of clarification, in case of assessee for assessment year 2006-07, the NMP rate comes to 12.87% after showing the additional income, therefore the income shown by the assessee has to be accepted: for assessment years 2007-08 & 2008-09, the However; NP rate shown by the assessee after additional income comes to 10.69% and 10.53%. The AO will adopt the rate of 129 and will compute the income accordingly. TaX Afte 3 6 Jvnoe