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  • u/s 234A and 234B of the Income Tax Act,1961.
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Smart Summary

Tribunal Summary — ITA Nos. 1, 2 & 167/Del/2011 (Order pronounced 12 July 2013)

Factual and Procedural Background

A search operation was carried out on 16.01.2007 at the business and residential premises of the firm (and partners). Consequent to the search, notices under section 153A were issued (dated 01.06.2007), and returns were filed: for assessment year 2005-06 on 05.10.2007 (return showing income of Rs.3,48,08,230/-) and for assessment year 2007-08 on 26.12.2007 (return showing income of Rs.6,64,45,650/-).

During the search officers seized envelopes containing money and slips. A statement of Shri Naveen Sood recorded that the slips reflected sales of scrap not recorded in books and that "84=20" on one slip referred to sundry debtors outstanding as on 15.01.2007. The assessee made disclosures (surrenders) during and after the search. Various additions were made by the Assessing Officer (AO) in assessments for AY 2005-06 and 2007-08 based on seized documents and other material; the assessee and the Revenue appealed to the Commissioner (Appeals), whose orders (dated 29.10.2010) are challenged before the Tribunal in the three consolidated appeals (two by the assessee, one by the Revenue).

Main additions by AO (as recorded in the opinion):

  • AY 2005-06: Addition of Rs.31,10,000/- on account of unaccounted scrap sales (as derived from seized slips).
  • AY 2005-06: Disallowance of Rs.3,16,300/- (1/8th of telephone, car running & maintenance and depreciation) as attributable to personal use.
  • AY 2007-08: Additions of Rs.88,140/- (unaccounted cash sales), Rs.3,89,759/- (petty sale of sundry scrap), and Rs.5,72,160/- (difference in stock) and charging of interest u/s 234B and 234C; assessee also claimed credit for cash of Rs.1,01,50,000/- seized at time of search.

Legal Issues Presented

  1. Whether the addition of Rs.31,10,000/- (unaccounted scrap sales) in AY 2005-06 was justified and whether the AO was entitled to split the surrendered amount (Rs.84.20 lakhs) between assessment years.
  2. Whether the ad-hoc disallowance of Rs.3,16,300/- (1/8th of telephone, car running, maintenance and depreciation) was permissible in the absence of incriminating material seized in the search.
  3. Whether additions in AY 2007-08 (Rs.88,140/-, Rs.3,89,759/-, Rs.5,72,160/-) should stand or be adjusted (telescopically) against the assessee's disclosure/surrender of Rs.38,28,352/- (part of a larger disclosure).
  4. Whether the Assessing Officer was obliged to give credit for cash seized (Rs.1,01,50,000/-) towards tax liability when the assessee requested adjustment after the dates for payment of advance tax had expired.
  5. Whether interest under sections 234A/234B/234C (as charged) required adjudication as an independent issue or is consequential.

Arguments of the Parties

Assessee's Arguments (as recorded)

  • The total surrender of Rs.84.20 lakhs (sundry debtors/outstanding outside books as on 15.01.2007) was offered in AY 2007-08 and the AO was not justified in splitting this amount between years; the surrender was made to "buy peace of mind".
  • The entry of Rs.31.10 lakhs dated 20.11.2004 represents a brought-forward balance and does not necessarily mean that the full amount belonged to financial year 2004-05; receipts were regular and the amount could have been exhausted over time.
  • For AY 2007-08, the surrender of Rs.2,47,50,000/- (which included Rs.38,28,352/- under head "others") was intended to cover sundry discrepancies revealed by seized material; therefore separate additions were not justified.
  • With respect to stock difference, a variation of 1.5% of total inventory was possible and physical stock-taking on the date of search could not be treated as 100% accurate.
  • The assessee had requested the department (by letter dated 10.05.2007) to adjust seized cash against tax liability.

Departmental Representative's Arguments (as recorded)

  • The document dated 20.11.2004 showing Rs.31.10 lakhs represents turnover/debtors of FY 2004-05, and therefore the AO was justified in apportioning Rs.31.10 lakhs to AY 2005-06 and the balance to AY 2007-08.
  • The AO's order and findings (including the additions for cash sales, petty scrap sales and stock difference) were supported by seized documents and other material seized in search; the AO's approach should be sustained.
  • With respect to the request to adjust seized cash, the Departmental Representative relied on the AO/CIT(A) approach (i.e., the request was not timely with respect to advance tax dates as found by CIT(A)).

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Jai Steels India vs. CIT, 259 CTR (Raj) 281 In assessment under section 153A (post-search), the completed assessment can be varied/tinkered only on the basis of incriminating material found during the search. The Tribunal applied this principle to hold that there was no incriminating material regarding telephone/car running/maintenance/depreciation expenses; accordingly the AO's ad-hoc disallowance (1/8th) could not be sustained and the assessee's ground on that disallowance was allowed.
Sudhakar Rao vs. ACIT, 10 DTR 173 (Mum) Where an assessee requests adjustment of seized cash towards tax liability, the Department must adjust seized amount towards advance tax from the date of request (as held in that authority). The assessee relied on this case to seek adjustment of seized cash. The Tribunal, however, recorded that the assessee's request to adjust seized cash was made on 10.05.2007 after the dates for payment of advance tax had expired; CIT(A) had rejected the claim and the Tribunal found no infirmity in that rejection (i.e., did not grant the relief sought by the assessee).

Court's Reasoning and Analysis

The Tribunal undertook a fact-sensitive analysis grounded on the seized documents, the surrendered amounts, the assessee's bookkeeping behavior outside books of account, the statements recorded during search/survey, and the orders of the AO and CIT(A). The Tribunal's step-by-step reasoning as set out in the opinion is summarized below:

  1. Regarding the Rs.84.20 lakhs surrender (sundry debtors): the Tribunal examined daily sales and closing-balance material showing progressive increases in outstanding sundry debtors up to Rs.84.20 lakhs on 15.01.2007. Because the records reflected an ongoing carried-forward system of undisclosed sales/debtors (the running totals were updated daily), it was not possible to ascertain precisely how much of the Rs.84.20 lakhs belonged to which financial year. The AO's reliance on a single handwritten entry dated 20.11.2004 showing Rs.31.10 lakhs to split the surrender between years was found to be an unreliable basis for apportionment. Consequently, the Tribunal agreed with the assessee that the Rs.84.20 lakhs represented undisclosed sundry debtors as on 15.01.2007 and could not be accurately segregated between AYs; the Tribunal allowed the assessee's ground that the split by the AO was not justified.
  2. On the ad-hoc disallowance of Rs.3,16,300/- (1/8th of certain expenses): the Tribunal found that no incriminating material concerning those expenses was discovered in the search. Applying the principle from Jai Steels India (that completed assessments can only be disturbed on the basis of incriminating material found in search for proceedings under section 153A), the Tribunal held that the AO was not justified in making the disallowance and allowed the assessee's ground on this point.
  3. For AY 2007-08 additions (Rs.88,140/-, Rs.3,89,759/-, Rs.5,72,160/-): the CIT(A) had sustained the additions on merits but directed "telescopic adjustments" (i.e., to offset these additions against the assessee's disclosure of Rs.38,28,352/- under the head "others"). The Tribunal reviewed the surrender of Rs.2,47,50,000/- (which included Rs.38,28,352/- under "others") and concluded that this surrender was meant to cover sundry discrepancies resulting from seized material and that the AO had not demonstrated that the disclosure did not include the three specific additions. On that basis, the Tribunal found no infirmity in the CIT(A)'s direction to give telescopic adjustments and therefore dismissed the Revenue's appeal challenging that direction.
  4. On the claim for credit of seized cash (Rs.1,01,50,000/-): the assessee relied on precedents (including Sudhakar Rao) to argue for adjustment of seized cash toward tax liability. The tribunal noted that the request to adjust seized cash was dated 10.05.2007, whereas the dates for payment of advance tax had already expired; CIT(A) rejected the claim on that ground, and the Tribunal found no infirmity in that conclusion and therefore upheld the rejection.
  5. Interest issues (sections 234A/234B/234C) were treated as consequential where applicable; the Tribunal observed that interest under section 234A was consequential and did not require separate adjudication in that context.

Holding and Implications

Holding: The appeals result in the following outcomes as per the Tribunal's order dated 12 July 2013:

  • Assessment Year 2005-06: The assessee's appeal is partly allowed — ground no.1 (splitting of the Rs.84.20 lakhs surrender / addition of Rs.31,10,000/-) is allowed; ground no.2 (ad-hoc disallowance of 1/8th of certain expenses) is allowed; interest (ground no.3) is consequential.
  • Assessment Year 2007-08: Appeals of both the assessee and the Revenue are dismissed — the Tribunal upheld the CIT(A)'s direction for telescopic adjustments of the three additions (against disclosure of Rs.38,28,352/-) and found no infirmity in the rejection of the assessee's claim for adjustment of seized cash made after the advance tax due dates.

Implications (direct, as stated in the opinion):

  • For AY 2005-06 the direct effect is that the AO's splitting of the Rs.84.20 lakhs surrender is set aside (insofar as the Rs.31.10 lakhs addition is concerned) and the ad-hoc disallowance of Rs.3,16,300/- is deleted. Interest consequences are to be dealt with as consequential to these determinations.
  • For AY 2007-08 the direct effect is that the CIT(A)'s order directing telescopic adjustments against the disclosed amount of Rs.38,28,352/- is sustained and the Revenue's challenge to that direction is dismissed; because the CIT(A) had sustained the additions but ordered telescopic adjustments, the Revenue's appeal on the adjustment direction fails and the assessee's appeal on those particular grounds (1 to 3) became infructuous as a result of that dismissal.
  • No broader precedent beyond the application of cited authorities (as discussed in the opinion) was declared by the Tribunal; the decision resolves the parties' disputes for the two assessment years concerned and leaves interest and consequential adjustments to be effected in accordance with the outcome stated.

Order pronounced in open court on 12/07/2013. Members: (R.P. Tolani) Judicial Member and (T.S. Kapoor) Accountant Member. The opinion records that copies were forwarded to the appellant, respondent, CIT, CIT(A), and CIT (ITAT), New Delhi.

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    M/s Vee Gee Industrial Enterprises, New Delhi v. ACIT, Faridabad

    PER T. S. KAPOOR, AM This is a bunch of three appeals out of which ITA No.1 and ITA No.2 have been filed by the assessee whereas ITA No.167 has been filed by Revenue. ITA No.1 is directed against the CIT (A)s order dated ITA Nos.1,2 &167 /Del/2011 29.10.2010, whereas ITA No.2 and ITA No.167 are directed against another order of CIT (A) dated 29.10.2010. The grounds taken by assessee as well as by Revenue are as under: Grounds of ITA No.1

    1. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in upholding the action of the Ld. Assessing Officer in making addition of Rs.31,10,000/- allegedly on account of unaccounted scrap sales.

    2. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in upholding the action of the Ld. Assessing Officer in making an ad-hoc disallowance of Rs.3,16,300/- being 1/8th of telephone, car running and maintenance and depreciation thereon without any basis or material.

    3. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in upholding the action of the Ld. Assessing Officer charging interest u/s 234A and 234B of the Income Tax Act,1961.

    4. That the appellant craves the leave to add, amend, modify, delete any of the grounds of appeal before or at the time of hearing and all the above grounds are without prejudice to each other. Grounds of ITA No.2

    1. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in upholding the action of the Ld. Assessing Officer in making addition of Rs.88,140/- allegedly on account of unexplained cash sales. ITA Nos.1,2 &167 /Del/2011

    2. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in upholding the action of the Ld. Assessing Officer in making addition of Rs.3,89,579/- on account of unexplained petty cash sales.

    3. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in upholding the action of the Ld. Assessing Officer in making addition of Rs.5,72,167/- on account of alleged difference in stock.

    4. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in upholding the action of the Ld. Assessing Officer in charging interest u/s 234B and 234C of the Income Tax Act 1961, more so without giving credit of cash of Rs.1,01,50,000/- seized at the time of search.

    5. That the appellant craves the leave to add, amend, modify, delete any of the grounds of appeal before or at the time of hearing and all the above grounds are without prejudice to each other. Grounds of ITA No.167

    1. The Ld. CIT (A) has erred both in law and on the facts of the case in directing the Assessing Officer to allow telescopic adjustment to the addition for Rs.88,140/- made by the Assessing Officer on account of unaccounted cash sales against the disclosure for Rs.38,28,352/- made by the assessee on account of others, without appreciating that the bifurcation of disclosure under the head others, does not include the surrender of income on account of unaccounted cash sales for Rs.88,140/-.

    2. The Ld. CIT (A) has erred both in law and on the facts of the case in directing the Assessing Officer to allow telescopic adjustment to the addition for Rs.3,89,759/- made by the Assessing Officer on account of unaccounted petty sales of ITA Nos.1,2 &167 /Del/2011 scrap against the disclosure for Rs.38,28,352/- made by the assessee on account of others, without appreciating that the bifurcation of disclosure under the head others, does not include the surrender of income on account of unaccounted petty sales of scrap for Rs.3,89,759/-.

    3. The Ld. CIT (A) has erred both in law and on the facts of the case in directing the Assessing Officer to allow telescopic adjustment to the addition for Rs.5,72,167/- made by the Assessing Officer on account of shortage of stock detected during search against the disclosure for Rs.38,28,352/- made by the assessee on account of others, without appreciating that the bifurcation of disclosure under the head others, does not include the surrender of income on account of shortage of stock and also that the Ld. CIT (A) has himself not accepted the contention of the assessee that shortage of stock comes to 1.5% of the total inventories of the assessee and this variation is possible.

    4. The Appellate craves leave to add or amend the grounds of appeal on or before the appeal is heard and disposed off.

    5. It is prayed that the order of the CIT (A) be set aside and that of the Assessing Officer be restored.

    2. The brief facts of the case are that there was a search on 16.01.2007 at the business premises as well as residential premises of the firm and in consequence a notice dated 01.06.2007 u/s 153(A) was issued and in response to notices dated 01.06.2007 and dated 21.01.2008, the assessee filed return of income for Rs.3,48,08,230/- on 05.10.2007 and for Rs.6,64,45,650/- on 26.12.2007 for assessment year 2005-06and 2007-08 ITA Nos.1,2 &167 /Del/2011 respectively. During search besides other things envelopes containing certain slips and money were found and the contents of such envelope and slips were encountered to Shri Naveen Sood who stated that these slips contained in envelopes reflect the sales of scrap, which was not recorded in the books of accounts. It was further submitted that 84=20 mentioned on one of the slips was the amount of sundry debtors outstanding as on 15.01.2007. Shri Naveen Sood had further submitted that these were part of their surrender income which they had offered during search on 16.01.2007.

    3. During assessment proceedings, the assessee was asked to give details of disclosure which was offered for taxation on 16.01.2007 and in response the assessee filed a chart showing a surrender of Rs.2,87,56,126/- which included Rs.84.20 lacs on account of sale of scrap not recorded in the books of accounts. The Assessing Officer on examination of seized material observed that the envelopes contained names of M/s Rachna Trading Co. and in one of the slips figure of Rs.31.10 as on 20.11.2004 was mentioned. From the above, the Assessing Officer inferred that the sale of scrap out side the books of accounts for F.Y.2004-05 was Rs.31.10 lacs. He further observed that, M/s Rachna Trading Co. had also made a surrender of Rs.35 lacs during assessment year 2005-06 on account of ITA Nos.1,2 &167 /Del/2011 unaccounted purchase of scrap from the assessee. Therefore, the Assessing Officer held that sale of scrap amounting of Rs.31,10,000/- related to assessment year 2005-06 and remaining amount of Rs.53,10,000/- related to assessment year 2007-08. Therefore, he made an addition of Rs.31,10,000/- in the assessment year 2005-06. He further observed that assessee had claimed an expenditure on telephone, car running, maintenance, depreciation and considering the element of personal use by partners disallowed a sum of Rs.3,16,300/- being 1/8th of these expenses. In assessment year 2007-08, the Assessing Officer made the following additions:

    a) Rs.88,140/- on account of unaccounted cash sales.

    b) Rs.3,89,759/- on account of petty sale of sundry scrap.

    c) Rs.5,72,160/- on account of difference in stock.

    4. The Assessing Officer in respect of first addition had observed that there was document which showed cheque and cash payment received by assessee and, therefore, the assessee was confronted to furnish explanation. In reply the assessee submitted that the receipt represented part of Rs.84.20 lacs as scrap sales made by the assessee. However the Assessing Officer held that assessee in the chart showing total surrender did not include such amount and, therefore, he made separate addition of Rs.88,140/-. Similarly ITA Nos.1,2 &167 /Del/2011 from another document the assessee was confronted to explain the sale. In reply to which, the assessee submitted same answer as the amount is included in the surrender amount of Rs.84.20 lacks. However, Assessing Officer did not agree with the contentions and made addition of Rs.3,89,759/-.

    5. The 3rd addition of Rs.5,72,160/- was made on account of difference in stock as per books of accounts and as per valuation done at the time of search. The Assessing Officer had not accepted the explanation regarding shortage of stock and, therefore, made the addition.

    6. Aggrieved with both orders, the assessee filed appeals before C IT (A) and in respect of assessment year 2005-06. It was submitted that figure of Rs.84.20 lacs as on 15.01.2007 was offered to tax by assessee while filing the return of income for assessment year 2007-08 and Assessing Officer was not justified in splitting the same into two years. It was also submitted that there was no linking of running balance on the envelopes and assessee merely surrendered his amount of Rs.84.20 lacs to buy peace of mind and that statement of M/s Rachana Trading Co. was taken during survey after the search of assessee and it cannot be used for making addition in the case of assessee. ITA Nos.1,2 &167 /Del/2011

    7. The Ld. CIT (A) after going through the submissions of assessee did not agree with the contentions of assesssee and upheld the addition by holding as under: I have considered the facts of the case and the submissions of the AR search and seizure operation was conducted at the business premises of M/s Vee Gee Industrial Enterprises as well as residential premises of partners on 16.01.2007. Various documents were seized during the course of search u/s 132. During the course of search at House No. 5P/6-7, NIT, Faridabad on 16.01.2007, certain envelopes containing money inside and slips inside the envelopes were found and seized. During the course of search statement of Sh. Navin Sood was recorded wherein he has accepted the narration on envelopes as sale of scrap outside regular books of accounts. The statement of Sh. Joginder Lal Arora Prop. M/s Rachna Trading Co. was also recorded during the course of survey u/s 133A of the Act in the premises of M/s Rachna Trading Co. in which entire amount of cash purchases made from the assessee firm has been declared during the F. Y. 2004-05 as expenditure outside regular books of accounts. The Assessing Officer noticed that entries in envelopes pertain to two financial year, i. e., 2004-05 relevant to the A. Y. 2005-06 and financial year 2006-07 relevant to the assessment year 2007-

    08. The cash in the envelopes was found during the search and the amount receivable was mentioned in circles as 84=20 which means 84,20,000/-. Sh. Navin Sood admitted that these debtors were outstanding on 15.01.2007 and were outside regular books of accounts. Accordingly, the assessee disclosed an amount of Rs.84,20,000/- which was stated to be included in the total disclosure of Rs.5 crores. In the course of assessment proceedings, the Assessing Officer however bifurcated the disclosure of Rs.84,20,000/- in two assessmsent years depending upon the period to which the amount of Rs.84,20,000/- pertained. The Assessing Officer noticed that amount of Rs.31,10,000/- pertained to F. Y.2004-05 relevant ITA Nos.1,2 &167 /Del/2011 to the A. Y.2005-06. Accordingly, the Assessing Officer made the addition of Rs.31,10,000/- in the A.Y. 2005-06. The Assessing Officer has observed that the remaining amount of Rs.53,10,000/- (Rs.84,20,000-Rs.31,10,000) shall be added in A. Y.2007-08. The A. R. however has contended that surrendered amount was made for the current year for A. Y. 2007-08 as the amount of Rs.31,10,000/- was not received in A. Y. 2005-06. Moreover, surrender made by M/s Rachana Trading Co. is not binding on the assessee. However, ARs submissions are not acceptable. The assessee admittedly is following mercantile system of accounting. The seized documents revealed that amount of Rs.31,10,000/- pertained to the scrap that was sold in the period relevant to the assessment year 2005-06 and therefore, the Assessing Officer has rightly made an addition of Rs.31,10,000/- from the total scrap sale of Rs.84,20,000/- and made the addition of remaining amount of Rs.53,10,000/- in the A. Y. 2007-08 as the same pertained to A. Y.2007-08. In view of the above discussion, the submissions of the AR are rejected and the addition of Rs.31,10,000/- is upheld.

    8. The Ld. CIT (A) also did not agree with the contention of the assessee regarding addition on account of personal use of car and telephone expenses etc.

    9. For assessment year 2007-08, the assessee submitted before CIT (A) that it had made a surrender of Rs.38,28,325/- against others and which was meant to cover all such discrepancies which might occur from documents seized. It was further submitted that the difference in the physical stock and stock as per books amounted to 1.5% of total inventory and this much of variation was possible when the valuation of such a large ITA Nos.1,2 &167 /Del/2011 inventory is done. It was also submitted that physical stock taking on the date of search cannot be agreed as 100% correct and in view of the above submissions it was submitted that separate additions made by Assessing Officer be deleted.

    10. The Ld. CIT (A) after going through the submissions of assessee directed the Assessing Officer to give telescopic adjustment of above aforesaid three additions against the total disclosure Rs.38,28,352/- by holding as under: In view of the above, I am of the opinion that telescopic adjustments of the aforesaid three additions is required to be given against the disclosure of Rs.38,28,352/- made on account of others. The Assessing Officer has not pointed out as to how the disclosure of Rs.2,47,50,000/- which includes disclosure of Rs.38,28,352/- on account of others does not include the aforesaid three additions. In view of the above of the above, all three additions are sustained on merits and the Assessing Officer is directed to allow telescopic adjustments of the same against the additional income of the assessee disclosed in the course of search.

    11. Aggrieved, with the orders of CIT (A) the assessee is in appeal before us for both years, whereas Revenue is in appeal for assessment year 2007-08. Though Ld. CIT (A) directed the Assessing Officer to give telescopic adjustments with respect to the additions but sustained the additions on merits therefore both parties are under appeal in A. Y. 2007-

    08. At the outset, the Ld. AR arguing for assessment year 2005-06 ITA Nos.1,2 &167 /Del/2011 submitted that assessee had made a total surrender of Rs.84.20 lacs in the assessment year 2007-08. In view of seized documents and Ld. Assessing Officer has wrongly splitted the same in two years which was without any basis. It was further submitted that entire amount of Rs.84.20 lacs representing outstanding debtors as on 16/01/2007 outside books of accounts was made to buy peace of mind. It was further submitted that all other surrenders has been accepted in assessment year 2007-08 and, therefore, there was no reason in splitting the surrender on account of scrap sale. Our attention was invited to paper book pages 3 to 7, wherein the break up of daily sale along with closing balances of total debtors was placed. Our attention was invited to entry dated 10.10.2007, wherein the amount of outstanding was Rs.75.50 lacs and after adding the debtors for 11.01.2007 the amount of outstanding became Rs.78.50 lacs and similarly the amount had become to Rs.79.50 lacs by adding debtors of 12.01.2007 and similar were the position up to 15.01.2007 wherein the balance had become Rs.84.20 lacs. He further took us to page 23 of paper book wherein as on 20.11.2004 an amount of Rs.31.10 lacs was written and in view of these, he argued that Rs.31.10 represented brought forward balances from previous dates and it cannot be said that the entire amount belonged to previous year 2004-05. The Ld. AR further argued that surrender of ITA Nos.1,2 &167 /Del/2011 Rs.84.20 lacs was made on account of undisclosed assets in the form of outstanding debtors as on date of search & Assessing Officer was not justified in splitting the same.

    12. The Ld. Departmental Representative on the other hand submitted that page 23 mentioning the debtors at 31.10 lacs was really total amount of debtors as 20.11.2004 which necessarily represented the amount of sales for the financial year 2004-05 and, therefore, it was argued that Assessing Officer has rightly splitted the surrendered amount of Rs.84.20 lacs between two years as this amount of Rs.31.10 lacs pertained to financial year 2004-05. The Ld. AR in his rejoinder submitted that survey was conducted on 16.01.2007 and amount was surrendered for assessment year 2007-08 to buy peace of mind and total outstanding of debtors outside the books of accounts were surrendered in the year of survey.

    13. With regard to assessment year 2007-08, the Ld. AR took us to paper book page 5 and invited our attention to break up of surrendered amount of Rs.2,47,50,000/- which included an amount of Rs.38,28,352/- as others and in view of the above, it was argued that amount under the head Others was surrendered to cover any other discrepancies found during search. Therefore, he argued that a further addition by Assessing Officer ITA Nos.1,2 &167 /Del/2011 was not justified. The Ld. Departmental Representative on the other hand relied upon the order of Assessing Officer.

    14. We have heard the rival parties and have gone through the material placed on record. We find that assessee had surrendered an amount of Rs.2,47,50,000/- which included an amount of Rs.84.20 lacs on account of scrap sale which is apparent from paper book page 5. The total amount of surrender was included in the income of assessee in its computation of income placed at paper book page 2. The amount of Rs. 84.20 lacs is on account of outstanding debtors not recorded in the books of accounts as on 16.01.2007, which is apparent from paper book pages 1 to 7. The amount of sundry debtors as on 10.01.2007 were Rs.75.50 lacs as is evident from paper page 7. After recording the total sales and receipts out of daily sales the amount of sundry debtors became Rs.78.50 lacs on 11.01.2007 and then on 12.01.2007 it became 79.50 lacs and on 13.01.2007 it became Rs.82.20 lacs and which ultimately on 15.01.2007 became Rs.84.20 lacs. Therefore, it can be said that Rs.84.20 lacs represented the total outstanding amount of sundry debtors not recorded in the books of accounts and it cannot be ascertained as to how much amount belonged to which year. The Assessing Officer splitted the surrender amount of Rs.84.20 lacs on account of document dated 20.11.2004 placed at paper ITA Nos.1,2 &167 /Del/2011 book page 23 wherein an amount of Rs.31.10 lacs was written and concluded that this amount represented turnover of A. Y. 2004-05 which finding may not be correct as the assessee might have received this amount of Rs.31.10 lacs in financial year 2004-05 and financial year 2005-06 as on an average assessee used to receive money almost regularly and amount of Rs.31.10 lacs must have exhausted within two years. From the above documents, it is clear that assessee was maintaining record of sales and debtors outside the books of accounts in such a manner that total outstanding was carried forward to next date wherein the total sales after reducing cash received was further added to the brought forward figure which represented outstanding debtors as on a particular date. During search proceedings, the assesssee had surrendered a particular amount representing various undisclosed assets including sundry debtors of Rs.84.20 lacs. When all other undisclosed assets has been accepted as income for A.Y 2007-08, the Assessing Officer was not justified in splitting this particular asset on the basis of seized material. The amount of surrender of sundry debtors of Rs.84.20 lacs was the amount of undisclosed debtors as on 15/01/2007 which is also apparent from the statement of Shri Naveen jindal placed at paper book page 29 wherein he had agreed that the amount of Rs.84.20 lacs was debtors out side the books ITA Nos.1,2 &167 /Del/2011 of accounts on 15.01.2007 which was surrendered and was a part of total surrender of five crores.

    15. In view of the above, we agree with the contentions of assessee and allow ground no.1 of the appeal. In respect of second ground of appeal regarding disallowance of telephone, car expenses etc we observe that no incriminating material was found in respect of such expenses which could enable the Assessing Officer to disallow a part of it during proceedings u/s 153A. This has been held in various pronouncements of various courts and the latest being by Honble Rajasthan High Court in the case of Jai Steels India vs. CIT in 259 CTR (Raj) 281, where the Honble Court has held that in case of assessment u/s 153A, the completed assessment can be tinkered only on the basis of incriminating material found during search. Therefore, in the present case without any incriminating material Assessing Officer was not justified in making disallowance. Therefore, ground no.2 is also allowed.

    16. Ground no.3 is regarding charging of interest u/s 234(A). Which is consequential and do not require adjudication. In view of the above, appeal of the assessee for assessment year 2005-06 is partly allowed.

    17. As regards appeals for assessment year 2007-08 filed by assessee as well as Revenue, we find that Ld. CIT (A) has directed the Assessing ITA Nos.1,2 &167 /Del/2011 Officer to allow telescope adjustments against three additions. However, he had sustained the additions on merits.

    18. The Revenue is in appeal against the directions of Ld. CIT (A), whereas the assessee is in appeal on merits. We find that the assessee had surrendered an amount of Rs.38,28,352/- on account of other items and which was meant for any sundry discrepancies, Which may creep up from seized material therefore, Assessing Officer was not justified in making further additions. Moreover, the Assessing Officer did not point out anything which had covered the amount of Rs.38,28,352/- as additions and in view of the above, we do not see any infirmity in the order of Ld. CIT (A) with regard to directions for telescopic adjustments. Therefore, appeal filed by Revenue is dismissed and in view of the above of dismissal of Revenues appeal, ground 1to 3 of assessees appeal has become in fructuous and hence dismissed. Ground no. 4 of assessees appeal relates to the fact that the Assessing Officer did not give credit for cash seized amounting of Rs.1,01,50,000/- at the time of search. The assessee has relied on the case law of Sudhakar Rao Vs. ACIT 10 DTR 173 (Mum) and further relied upon case laws relied before Ld. CIT (A), wherein it was held that where assessee requested the Department to adjust the cash seized during search ITA Nos.1,2 &167 /Del/2011 against tax liability the Department has to adjust the seized amount towards advance tax, from the date of request.

    19. The assessee at paper book page 21 has filed a copy of letter dated 10.05.2007 wherein it had requested the ADI to adjust cash seized against the tax liability and Ld. CIT (A) has rejected the contention of assessee on the ground that on the date of request, dates for payment of advance tax had already expired. We observe that through cash was seized on 17/01/2007 but request was made only on 10/05/2007 by which period dates for payment of advance tax had passed away. Therefore, Ld. CIT (A) has rightly rejected the ground of appeal and we do not find any infirmity in the order on this point. In view of the above, appeals of assessee as well as Revenue for A. Y. 2007-08 are dismissed whereas appeal of the assessee for A. Y. 2005-06 is partly allowed. Order pronounced in Open Court on 12th /07/ 2013 Sd/- Sd/- (R.P. Tolani) (T.S. Kapoor) Judicial Member Accountant Member Dated the 12th day of July, 2013 S.Sinha ITA Nos.1,2 &167 /Del/2011 Copy forwarded to

    1. APPELLANT

    2. RESPONDENT

    3. CIT

    4. CIT (A)

    5. CIT (ITAT), New Delhi. AR, ITAT NEW DELHI.

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