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N.K. Proteins Ltd. Vs. Deputy Commissioner of Income Tax - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Ahmedabad
Decided On
Judge
Reported in(2004)83TTJ(Ahd.)904
AppellantN.K. Proteins Ltd.
RespondentDeputy Commissioner of Income Tax
Excerpt:
1. all these concerns and persons belong to a group known as "n k group". the proceedings of search were conducted in this case on 24th feb., 1999. the main grounds raised in all these appeals involve consideration of common and connected points. hence all these appeals were heard together and are being disposed of by this common order.2. we will first deal with the appeal in the case of n.k. proteins ltd. being it(ss)a no. 15/ahd/2002. the assessee has raised the following grounds in this appeal: 1. the learned cit(a) has erred in rejecting the contention that block assessment is void ab initio since the notice issued under section 158bc does not mention the status of the assessee and does not mention correct block period and therefore, the notice issued is invalid. 2.1 the learned.....
Judgment:
1. All these concerns and persons belong to a group known as "N K Group". The proceedings of search were conducted in this case on 24th Feb., 1999. The main grounds raised in all these appeals involve consideration of common and connected points. Hence all these appeals were heard together and are being disposed of by this common order.

2. We will first deal with the appeal in the case of N.K. Proteins Ltd. being IT(SS)A No. 15/Ahd/2002. The assessee has raised the following grounds in this appeal: 1. The learned CIT(A) has erred in rejecting the contention that block assessment is void ab initio since the notice issued under Section 158BC does not mention the status of the assessee and does not mention correct block period and therefore, the notice issued is invalid.

2.1 The learned CIT(A) has erred in holding that the purchases made from certain suppliers amounting to Rs. 4.76 crores, for asst. yr.

1998-99 and Rs. 7.23 crores for asst. yr. 1999-2000 amounting in all to Rs. 11.99 crores are bogus and thereby has erred in confirming addition of Rs. 11.99 crores as undisclosed income.

2.2 The appellant says and submits that the purchases of Rs. 4.76 crores for asst. yr. 1998-99 is recorded in the books of accounts and that the IT return for asst. yr. 1998-99 was submitted on 30th Nov., 1998, i.e., prior to the date of search and purchases of Rs. 7.23 crores for asst. yr. 1999-2000 have been recorded in the normal manner in books of accounts prior to the date of search, i.e., 24th Feb., 1999 and therefore, such transactions are not considered as undisclosed income as provided in Section 158BC(3).

2.3 The appellant further says and submits that the learned CIT(A) has erred in placing reliance on finding based on inquiry made by Addl. DIT under Section 131(1A) and that the learned Dy. CIT has not made any independent inquiry and therefore the addition made on the basis of inquiry made by learned Addl. DIT under Section 131(1A) is illegal and not warranted since the learned Addl. DIT also cannot make inquiry under Section 131(1A) after the conclusion of search.

2.4 The learned CIT(A) has erred in confirming the finding of the Dy. CIT as stated on from page Nos. 4 to 27 of the assessment order which is nothing but reproduction of appraisal report and that the AO has not made any independent inquiry whatsoever. The AO has relied only on the finding given by the Addl. DIT and that the AO has also not examined the suppliers who have filed the affidavits at the time of assessment.

2.5 The appellant further says and submits that the learned Addl.

DIT has obtained affidavits and statements from the proprietors of the said concerns of the suppliers behind the back of the assessee and that the learned Dy. CIT has placed reliance on such affidavits and that he has not considered the fresh affidavit filed by the assessee at the time of assessment.

2.6 The appellant further says and submits that the affidavits and statements obtained by the learned Addl. DIT are similar in contents and therefore it appears that such affidavits and statements are obtained under undue influence, therefore, any finding based on such affidavits and statements cannot be relied upon.

2.7 The appellant further says and submits that the learned Dy. CIT has erred in ignoring the affidavits filed by the proprietors of said concerns at the time of assessment and that they are rejected on the ground that the signature of some of the persons differ. In fact the learned Dy. CIT ought to have summoned the said persons and should have found out the truth and that the opportunity to cross-examine the said persons should have been given.

2.8 The appellant further says and submits that the assessee-company has in fact made purchases and has furnished the evidences at the time of assessment by giving the details such as date of inward, quantity received, MRS No., report No. alongwith the xerox copy of purchase bill, weighment slip, material inward receipt, transporter's LR, analysis report with reference to inward and stock register and that the assessee has also stated that if the purchases are ignored the production is more than the consumption of raw material. The appellant submits that the CIT(A) called for the remand report and the AO submitted remand report dt. 26th Dec., 2001 confirming the receipt of material and the consumption thereof and about the yield. However, the learned CIT(A) has ignored the facts of the material received and ignored the remand report and submissions of the assessee.

2.9 The appellant "further says and submits that the purchases were at the market rate which is confirmed by the learned Dy. CIT in the remand report dt. 26th Dec., 2001 and therefore, it is clear that the purchases were not made to deflate the profit.

2.10 The appellant further says and submits that the assessee-company has made the payment of the entire purchases by cheques to the suppliers which is not disputed.

3. The learned CIT(A) has erred in placing reliance on finding given by Addl. DIT in his appraisal report and has erred in ignoring the other submissions regarding factum of purchases and regarding the recording of purchases in the books of accounts in the normal manner, 4. The learned CIT(A) has erred in confirming the addition to the extent of Rs. 3,86,968 being the profit of alleged sales made by the company inasmuch as the transaction have never taken place.

5.1 The order of block assessment is bad in law and illegal inasmuch as the approval of Jt. CIT is granted under Section 158BG without giving any opportunity to the assessee of being heard. The power to grant approval is quasi-judicial and not administrative and therefore there has to be a judicial approach on entire facts, material and evidence [Kiritlal Kalidas & Co. v. Dy. CIT (1999) 64 TTJ (Mad) 77 : (1998) 67 ITD 573 (Mad)]. The Jt. CIT has a supervisory role and therefore approval granted is administrative in nature in the normal course but in block assessment in Chapter XIV-B a specific provision is made under Section 158BG for granting approval. It means that the power is quasi-judicial and not of administrative nature.

5.2 The appellant says and submits that the approval granted by the Jt. CIT appears to be mechanical without application of mind inasmuch as the approval is granted on 30th April, 2001, i.e., date of passing of the order and the date of service of the order.

7. The proceedings under Section 271(1)(c) r/w Section 158BFA(2) is wrongly initiated.

3. We will first deal with ground Nos. 2.1 to 2.10 and ground No. 3 relating to an addition of Rs. 11.99 crores made in respect of alleged bogus purchases. The main activities of the group concerns are manufacture and trading of castor oil and micro refined cotton seed oil. M/s N.K. Proteins Ltd. (in short NKPL) is engaged in the business of manufacture of micro refined cotton seed edible oil. The company is selling cotton seed oil in two brand names, namely, (i) "Tirupati" and (ii) "Trimurti". M/s NKPL purchases raw cotton seed oil from N.K.Industries Ltd. (in short NKIL) and from outside parties and refines it in their manufacturing plant at Thor, District Mehsana, Gujarat.

Thereafter, the refined oil is packed in containers and despatched.

4. During the course of search proceedings at the office premises of NKPL, blank signed cheque books and vouchers of number of concerns were found. Endorsed blank cheques of NKPL by these concerns were also found from the office premises of NKPL. Endorsement was on the back of the cheques. Blank bill books, letter heads and vouchers of these concerns were found and seized from the factory premises of NKPL. These documents found and seized from the premises of NKPL relate to various parties as discussed in para 6 of the assessment order. Purchases made from these concerns have been treated by the AO as bogus purchases in view of elaborate reasons recorded in the assessment order. Copies of bank accounts of these bogus parties were also obtained from the respective banks. The entire deposits in the bank accounts of these parties were treated as assessee's income on protective basis. It. has been observed in the assessment order that inquiries are being conducted to find out the names of concerns which made these payments for purchases and other expenses to these parties. Substantive additions/disallowances will be made in those concerns after conclusion of inquiries. However, these additions were made protectively in the case of the assessee as "additions made as unaccounted payments". The summary of such additions made on account of bogus purchases and in respect of deposits in the bank accounts of these parties as given on p. 9 of the order passed by the CIT(A) are as under : (f) Trivedi Corpn. (goods are sold by NKPL and sale proceeds are credited in the books) Note : *This figure should be Rs. 4,76,93,575 as per chart given at p. 2 of written submissions given by the assesses before the CIT(A).

**Payments to Krishna Industries as per details on p. 34 of AO is Rs. 2,79,01,621.

***Total unaccounted payments as per pp. 34 and 35 of assessment order is Rs. 31,48,12,332.

5. Let us briefly discuss the facts relating to purchases claimed to have been made by the parties mentioned at Sr. Nos. (a) to (e) of the aforesaid chart.

The AO has discussed the facts relating to this concern in paras 6.1 (on pp. 6 to 11) of the assessment order. The learned CIT(A) has discussed the facts relating to this concern in paras 6.5.1 to 6.5.6 on pp. 10 to 15 of his order. Shri Jaysukhlal Doshi is the proprietor of AC as well as Tirupati Corporation (in short TC). M/s AC had bank account No. C/A 531 with Mehsana Urban Co-op. Bank, Kadi Branch. This account was introduced by Shri Nilesh Patel, director of NKPL. The said bank account was opened on 17th April, 1998 by depositing Rs. 1,000 in cash. During the period from 17th April, 1998 to 7th July, 1998 the total deposits in this account are of Rs. 2,10,54,076, The entire amount has been deposited by transfer entries mostly from NKPL and the same has been withdrawn in cash on the date of deposit. The cash balance after taking into consideration the withdrawals made soon after the deposit remained around Rs. 5,041, which continued to be the balance as on 7th July, 1998 also. The summons under Section 131(1A) were issued in the name of AC at the address given to the bank. The summons were returned back unserved with the postal remarks "not known". Later on, the Inspector was deputed to serve the summons under Section 131(1A) and to make necessary inquiries. The Inspector reported that the address of A/5, Navprasthan Apartments, Nr. Bhavsar Hostel, Nawa Wadaj, Ahmedabad, given to the bank is one room apartment and is closed since long time. Nobody stays there. Whereabouts of the owner of AC could not be found. The address on bills of AC given to the bank was different than the address printed on their bills. The address on printed bills was that of Udaipur. The notices sent by RPAD were returned back with the postal remarks "not known". However, the Department found out the correct address of Shri Jaysukhlal Doshi who was then residing at Udaipur. The summons were served upon him. Shri Doshi did not appear in person in response to summons but sent an affidavit on a stamp paper of Rs. 10. The relevant facts stated in the said affidavit have been reproduced at pp. 7 and 8 of the assessment order, which read as under : "I, undersigned, Jaisukhlal Jamnadas Doshi, aged nearly 66 years, resident of A/5, Navprasthan Apartments, Nr Bhavsar Hostel, Nawa Wadaj, Ahmedabad at present residing at Toran Oil Mill (P) Ltd., 122, Chetak Marg, Sanghvi Bhavan, Udaipur, want to state under oath that, I was doing trading of oil in Ahmedabad. Recently, I started Toran Oil Mill (P) Ltd. at Udaipur, but due to financial constrains could not commence the business. I, in my own name or in any other name have not supplied any goods to N. K. Proteins Ltd. nor have, I sold anything. I had signed the account opening form, blank cheque book, printed bill book on the direction of Shri Nileshbhai Patel of N. K. Proteins and had handed over the same to him. These papers were in the name of Adinath Corporation and Tirupati Corporation. I had signed account opening forms and cheque books of current a/c No. 399 of Visnagar Nagrik Bank, Usmanpura Branch, in the name of Tirupati Corporation and a/c No. 531 of Mehsana Urban Co-op. Bank Ltd., Kadi in the name of Adinath Corporation. On all the papers, I had signed as proprietor of Adinath Corporation and Tirupati Corporation, but the entire business was under the control of Shri Nileshbhai Patel. I was just signing the papers, I have not received any profit or loss which might have arisen out of business of these concerns. But the entire thing has gone to Shri Nileshbhai Patel.

M/s Adinath Corporation and M/s Tirupati Corporation have never supplied any material at my time to M/s N.K. Proteins Ltd., Thor Kadi Road, Thor, District Mehsana, Gujarat. I don't have any knowledge about the business and nature of business activities of Tirupati Corporation and Adinath Corporation. In 1998, Shri Nileshbhai Patel was giving me Rs. 3,500 for signing the papers. On 20th Oct., 1998, I had to leave Ahmedabad because of financial crisis. After that, I have not received any money. Whatever has been stated above is true and correct.

This affidavit have been done to be given to Dy. Director of IT (Inv.), Unit-III (1), Ahmedabad." 6. The statement of Shri Nileshbhai Patel was recorded under Section 132(4) on 6th April, 1999. In the said statement, Shri Nileshbhai Patel had, inter alia, stated that he was buying raw material from AC through Rajesh broker and the office of AC was in Rajasthan. The statement of Rajesh broker was also recorded under Section 131(1A). The relevant portion of the said statement has been reproduced at p. 10 of the assessment order, which is as under : Ans. My name is Rajesh Budhalal Mehta, age 43 yrs. Qualification S Y B Com. resident of 4, Suvidha Flats, Nr. Nutan Nagrik Bank, Sarkhej Road, Vasna, Ahmedabad. Occupation--business and brokerage. I am in the name of Rajesh broker doing business of brokerage of oil and oil seeds. My office address is 15, Swastik Chambers, Nr. C. U. Shah College, Navjeevan Press Road, Ashram Road, Ahmedabad.

Q. 2. Are you paying income-tax? If yes, where are you assessed to tax? Ans. Yes, I am income-tax payee. My PA No. is 31-110-PM-2035 Wd 8(8) Q. 3. Have you ever done business with N.K. Proteins Ltd.? Have you ever sold goods to N.K. Proteins Ltd.? If yes, please tell when and at what rate and in what quantity? Ans. Till date, I have not sold any goods in my own name and I have not sold anybody else's goods to M/s N.K. Proteins Ltd. Q. 4. Are you sure that you have not sold any goods to N.K. Proteins Ltd. or you have not done any brokerage for sale of anybody else's goods to M/s N.K. Proteins Ltd.? Ans. Yes, I am sure that I have not sold any goods to N.K. Proteins Ltd. nor I have done brokerage for sale of others' goods to M/s N.K. Proteins Ltd. Ans. Yes, I do know Shri Nileshbhai Patel. I am doing business with the other concerns of Shri Nileshbhai Patel namely, N.K. Industries Ltd. I am supplying castor seeds and I am also doing brokerage for castor oil sale to N.K. Industries. Ltd. and brokerage for purchase of castor oil from N.K. Industries Ltd. Q. 6. Do you know Adinath Corporation address A/5, Navprasthan Apartments, Nr. Bhavsar Hostel, Nava Wadaj, Ahmedabad? Q. 7. Do you know Tirupati Corpn. address A/5, Navprasthan Apartments, Nr. Bhavsar Hostel, Nava Wadaj, Ahmedabad and Triveni Corporation address A/5, Navprasthan Apartments, Nr, Bhavsar Hostel, Nava Wadaj, Ahmedabad? Q. 8 Have you ever done brokerage for sale/purchase of goods of Adinath Corporation, Triveni Corporation, Tirupati Corporation and Viral Corporation/ Shri Rajeshbhai has thus totally denied about any sale/purchase of goods by Adinath Corporation, Tirupati Corporation, Triveni Corporation etc. to NKPL.

7. The AO has also discussed the facts stated by Shri Kamlesh Lalbhai Patel in his statement under Section 132(4) with regard to entries of such purchases in inward register for wash cotton seed oil. The extract of the said statement have been reproduced at pp. 8 and 9 of the assessment order.

8. On the basis of such material gathered by the AO during the course of search and as a result of post-search investigation, the AO observed as under at pp. 10 and 11 of the assessment order: (b) It is controlled and operated by Nilesh Patel, who is director of the assessee-company and handling the day-to-day affair of the assessee.

(c) The address given by Adinath Corporation to the bank is fictitious.

(d) M/s NKPL is inflating purchases by showing bogus purchases from Adinath Corporation.

(e) The money deposited in the bank account of M/s Adinath Corporation is withdrawn by NX Group of concerns by means of blank signed cheques found during the course of search.

Thus, it is clearly established that NK Protein has been inflating its purchases through this concern. From the details filed by the assessee it is found that the assessee has shown purchases from this concern in its books of accounts at Rs. 2,16,13,276." 9. M/s Tirupati Corporation (in short TC) had a bank account in Visnagar Nagrik Sahakari Bank, Usmanpura Branch, Ahmedabad. Their account No. is C/A 3994. Shri Jaysukhlal Doshi is a proprietor of this concern. This account has been introduced by M/s Durga Trading Co. of Visnagar. The account was opened on 29th Sept., 1997 by depositing Rs. 1,000 in cash. During the brief period from 29th Sept., 1997 to 14th May, 1998 the total deposits in this bank account were to the tune of Rs. 3,33,37,324. The entire amount has been deposited by transfer entries mostly from NKPL and the same has been withdrawn either in cash or by transfer entry on the date of deposit. The amount of withdrawal is exactly equivalent to the amount deposited on that particular date.

The amount withdrawn from this bank account has gone by way of transfer to Triveni Corporation. The address of this concern given to the bank and address printed on their bills were different as in the case of AC.The AO relying upon the affidavit of Shri Jaisukhlal J Doshi reproduced in relation to Adinath Corporation, arrived at similar conclusions as in the case of AC.10. Shri Dineshbhai Chaturbhai Patel is the proprietor of this concern.

They had opened their bank account with Mehsana Urban Co-op. Bank, Usmanpura Branch, Ahmedabad. Their bank account No. is C/A 1117. The total deposits in their bank account during the period from 18th June, 1998 to 19th April, 1999 is Rs. 10,50,05,834. (Search was conducted on 24th Feb., 1999. It therefore appears that this figure includes payments after the search also). The summons sent to the aforesaid party at the address given to the bank could not be served. The Inspector was deputed to serve the summons and make necessary inquiries. It was found that no party existed at the given address.

Shri Nileshbhai Patel in his statement recorded on 6th April, 1999 inter alia stated that NKPL were buying raw material from this concern through Lalchandbhai broker and Rajesh broker. Shri Lalchandbhai broker was also summoned under Section 131(1A) and his statement was recorded on 7th June, 1999. The relevant portion of his statement has been reproduced at pp. 15 and 16 of the assessment order, which is as under: Extracts from statement of broker Shri Lalchanbhai (alias Shri Lalsingh Amarsingh) Ans. My name is Lalsingh Amarsingh Rajput aged 36 years residing at L-74, Swatantra Senaninagar, Opp: Akhbarnagar, Nava Wadaj, Ahmedabad, Occupation--business, proprietor of Vikram Associates, at 404, Maurya Complex, Opp: C U Shah College, Ashram Road, Ahmedabad.

Ans. Yes, I am filing IT return. My wife is filing her IT return vide PA No. 31-126-PT-6680, Ward-2(7), Gandhinagar, Ahmedabad. My ITPA No. 31-126-P/0943/Ward-2(7), Gandhinagar, Ahmedabad. I had filed my IT return upto asst. yr. 1998-99.

Q. 3 What is your relationship with N.K. Industries Ltd., N.K. Proteins Ltd. and Shri Nileshbhai K. Patel, chairman of N.K. Proteins Ltd. and M D of N.K. Proteins Ltd. Ans. I hereby stated that I have no business relation with above N.K. Industries Ltd. N.K. Proteins Ltd. and Shri Nileshbhai Patel.

Q. 4 Have you ever sold or purchased any type of raw material to N.K. Industries Ltd. or N.K. Proteins Ltd. or from them? Ans. My business is not related with oil, oil seeds or cattle foods and I do not know any businessman mentioned above. I had not sold any type of goods to them or not purchased from them.

Q. 5 Have you done any brokerage work for sale or purchase of goods of above N.K. Proteins Ltd., N.K. Industries Ltd. or Nileshbhai K. Patel? Q. 6 M/s Karnavati Industries, D-639, B G Towers, O/s Delhi Gate, Ahmedabad, M/s Krishna Industries, A-15/1, Chnaibag Estate, Opp: Water Tank, Dudheshwar Road, Ahmedabad and M/s Vimal Industries, 105/1, Amrut Indl. Estate, Opp: Water Tank, Dudheshwar Road, Ahmedabad, do you know any one of the above three parties? Have they sold their goods through you to N.K. Proteins Ltd. or on behalf of N.K. Proteins Ltd. you have purchased any goods and sold to N.K. Proteins Ltd. or NK Industries Ltd. have purchased any goods through you from above three parties? If yes, please give details.

Ans. No, I do not know N.K. Proteins Ltd. and above three parties.

Any type of their goods had not been sold through me to N.K. Proteins Ltd. or I had not purchased any goods on behalf of N.K. Proteins Ltd. from them or N.K. Proteins Ltd. had not purchased any type of goods from them through me.

11. On the bills of Vimal Industries and Karnavati Industries sales-tax numbers were given. The inquiry from Sales-tax Officer was made with a view to find out identity of the owners of these concerns. From the details so obtained from the Sales-tax Department, it was gathered that the owner of Vimal Industries was one Shri Dinesh Chaturbhai Patel and the owner of Karnavati Industries was Shri Rasik Keshavlal Patel. The statement of Shri Dinesh Chaturbhai Patel, proprietor of Vimal Industries was recorded under Section 131(1A). The relevant portion of his statement have been reproduced at pp. 17 to 19 of the assessment order, which is as under : Extracts from statement of Shri Dinesh Chaturbhai Patel, proprietar of M/s Vimal Industries : Ans. I am not doing any business or profession. I am unemployed.

Shri Nileshbhai of N.K. Industries and N.K. Proteins Ltd. gives me Rs. 3,000 to Rs. 3,500 per month. I am meeting my household expenses out of this.

Ans. Nileshbhai used to ask me to sign on the bill book and cheque books of Vimal Industries, Add: 105/1, Amrut Indl. Estate, Nr Water Tank, Dudheshwar Road, Ahmedabad. I am doing so, in lieu of this he is giving me money.

Q. 4 What is your relationship with Vimal Industries and what Vimal Industries is doing? Ans. I am not doing anything in Vimal Industries. Vimal Industries is a proprietorship firm in my name. The entire work of Vimal Industries is being done by Shri Nileshbhai Patel of N.K. Industries and N.K. Proteins Ltd. He is doing the entire business in this name.

I am only signing cheque books and bill books as per his direction.

Whatever profit or loss which may be resulting belongs to Nileshbhai. I do not know anything. I am only getting Rs. 3,000 to 3,500 per month from Nileshbhai. What business Vimal Industries doing I have no knowledge. Only Nileshbhai is having the knowledge.

Ans. I was doing service in N.K. Proteins Ltd. during 1995, 1996.

Since then I know Nileshbhai Patel.

Q. 6 Since how long you have been signing bill books and cheque books of Vimal Industries on the direction of Nileshbhai Patel? Q. 9 I am showing you the sales-tax application form for sales-tax No. 1100 dt. 4th June, 1998. Please go through it and tell whether the signature is yours or not? If yes, why did you sign this application? Ans. Yes, the signature on this is mine, I have signed on this form as per the direction of Nileshbhai Patel.

Q. 10 Where is the bank account of Vimal Industries? Please give the name of the bank and account No.? Ans. The bank account of Vimal Industries is in Madhavpura Mercantile Co-op. Bank Ltd., New Madhavpura and the other account is in Mehsana Urban Coop. Bank, CG Road Br. The accounts have been closed.

Q. 11. Have you ever visited the bank for withdrawing or depositing money in the name of Vimal Industries? Ans. No, I have never visited the bank for doing any transaction in the name of Vimal Industries, Even on the account opening form, I had signed in the office of Nileshbhai Patel.

Q. 12 You have signed in the name of Vimal Industries on the direction of Nileshbhai Patel. Have you done any business in any other name? If yes, please explain? Ans. No, I have not signed on behalf of any other concern except for Vimal Industries.

Q. 13 Now I am showing you p. 92 of loose paper file A/22, which has been seized from the N.K. Proteins Ltd. which is blank cheque of account No. 1117 of Mehsana Urban Co-op. Bank Ltd. on which rubber stamp of Vimal Industries is there and there is a signature below that, is it your signature? Ans. Yes, it is my signature, which I have done as per the direction of Nileshbhai Patel and I am doing this type of signature in bank.

Ans. Address of Vimal Industries given to sales-tax is 105/1, Amrut Indl. Estate, Dudheshwar Road, Ahmedabad.

Ans. No, I have not seen this address. The application form have been filled by Nileshbhai Patel. I have just signed it. Whether the address is right or wrong, I have no knowledge.

Q. 17 At the time of applying for sales-tax number, you had given your residential light bill, ration card, driving licence and your photograph. Why did you give all these things. If you did not have any relationship with Vimal Industries? Ans. Nileshbhai had asked for all these things and I had given them to Nileshbhai Patel, which he had used for getting sales-tax registration of Vimal Industries.

Q. 18 Have you ever done sales or purchases in the name of Vimal Industries? Ans. Till date, I have not done any trading (sales or purchases) in the name of Vimal Industries. I have signed the entire bill books and cheque books as per the direction of Nileshbhai Patel as mentioned above. I do not know anything else except this.

On the basis of such material and the fact that some blank signed cheque books, vouchers of Vimal Industries were found at the office premises of NKPL during the search, the AO arrived at similar conclusions as that in the case of Adinath Corporation.

12. They also opened their bank account with Visnagar Nagrik Sahakari Bank Ltd. Usmanpura Branch, Ahmedabad. The notices sent to this party at the address given to the bank could not be served. The Inspector was deputed to serve the summons under Section 131(1A) and to make necessary inquiries. The Inspector reported that the owner of the property did not know Shri Rajesh Keshavlal Patel, proprietor of Krishna Industries. No such concern or person ever occupied the said premises. Shri Nileshbhai Patel in reply to question Nos. 10 and 11 of his statement dt. 6th April, 1999 had inter alia stated that the transactions with these suppliers were made through Rajesh broker and Shri Lalchand broker. A reference to the statements of these two brokers has also been given hereinbefore. The AO has reproduced the extracts from the statement of Shri Kamlesh I Patel recorded under Section 132(4) on 24th/25th Feb., 1999 on pp. 21 and 22 of the assessment order to support his conclusion that the test check of entries of purchases of material from the aforesaid party was verified with gate inward register maintained by security personnel employed at NKPL and none of the entries of purchases from the aforesaid party were found in the gate inward register. Shri Kamlesh. I Patel had also stated in the said statement that if there is any discrepancy in making entries in the said inward register, the same shall be clarified from examination of books of NKPL. The AO found out the address of Rajesh Keshavlal Patel, proprietor of Krishna Industries from sales-tax registration form submitted by that party and with the help of Shri Dinesh Chaturbhai Patel, proprietor of Vimal Industries. He was summoned under Section 131(1A) and his statement was recorded on 3rd June, 1999. The relevant portion from the statement of Shri Rajesh Keshavlal Patel is reproduced at pp. 22 and 23 of the assessment order, which is as under : Extracts from statement of Shri Rajesh Keshavlal Patel, proprietor of M/s Krishna Industries : Ans. At present, I don't have any source of income. But sometimes that I was working for Shri Nileshbhai Patel of N.K. Proteins Ltd. For that he was paying me Rs. 2,500 per month.

Ans. I was introduced to Shri Nileshbhai Patel by Shri Jagabhai Patel of Jotana, whose Ahmedabad phone No. is 6569184 and the residence phone No. at Mensana is 50661. Q. 4. What is your relationship with Shri Nileshbhai Patel? Ans. I was working for Shri Nileshbhai Patel. As per his directions, I was signing cheque books, bill books and other papers and in lieu of all these he was paying me Rs. 2,500 per month.

Q. 5. What is your relation with Krishna Industries A/15/1, Chinaybag Indl. Estate, Nr Water Tank, Dudheshwar Road, Ahmedabad? Ans. Shri Nileshbhai Patel had opened a concern named Krishna Industries in my name. As per his instructions, I had signed on sales-tax registration form and bank account opening form.

Thereafter, as per his instruction, I had signed on bills of Krishna Industries and cheques of Krishna Industries. I had signed on blank cheque books and had handed it over to him. I have not done any business in the name of Krishna Industries. If any transaction in the name of Krishna Industries has taken place, it must have been done by Nileshbhai Patel. I don't have anything to do with him. If any profit or loss arisen because of the transaction in the name of Krishna Industries it has gone to Shri Nileshbhai Patel.

Q. 6. In how many banks, the bank account of Krishna Industries were there? Ans. Current bank accounts in the name of Krishna Industries were there in the Visnagar Nagrik Sahakari Bank Ltd., Usmanpura Branch and Mehsana Urban Co-op. Bank Ltd., Swastik Char Rasta Branch.

Q. 7. Have you ever purchased or sold any goods in the name of Krishna Industries? If yes, please explain? Ans. No, I have never done any sales or purchases in the name of Krishna Industries.

Q. 8. I am showing you loose paper file A/22 pp. 108 to 127 which has been seized from the office of the N.K. Proteins Ltd. during the course of search. This is blank cheque of Krishna Industries It is of Visnagar Nagrik Sahakari Bank, Usmanpura Branch a/c No. 4203. Is the signature on this yours? Q. 9. I am showing you loose paper file A/22 pp. 82 to 91 which is N.K. Proteins cheque of Visnagar Nagrik Sahakari Bank, Usmanpura Branch is the signature on the back of this yours? Q. 10. Why have you signed on the back of the cheques of N.K. Proteins Ltd.? What is the reason? Ans. I do not know the reason, I have signed as per the direction of Shri Nileshbhai Patel. Q. 11. Have you ever sold any goods to N.K. Proteins Ltd.? Q. 12. I am telling you the address of Krishna Industries given by you on the bill book and letter head, i.e., A/15-1, Chinabag Indl.

Estate, Nr. Water Tank, Dudheshwar Road, Ahmedabad. On inquiry, it has been found that at this address, there is a factory in the name of M/s Virchand & Brothers which is making gas hot plate. At this address, no business activity is going on in the name of Krishna Industries. Please explain the same? Ans. I had signed on the sales-tax registration form and bank account opening form as per the direction of Shri Nileshbhai Patel.

I don't know about the address. It has been given by Shri Nileshbhai Patel.

Ans. No, I don't have any source of income and I am not filing the IT return.

On the basis of aforesaid material, the AO came to similar conclusions as in the case of Adinath Corporation that the aforesaid supplier is a fictitious entity and its entire affairs were controlled by Shri Nileshbhai Patel, who is director of the appellant-company. The purchases of raw material to have been made from Krishna Industries were bogus.

13. Their account was opened with Visnagar Nagrik Sahakari Bank Ltd. Usmanpura Branch, Ahmedabad. This account was introduced by Mahavir Agrochem Industries. During the brief period from 29th Dec., 1997 to 29th Dec., 1998, the total deposits in this account aggregating to more than Rs. 12 crores were made. The entire deposits came by way of transfer or by clearing of cheques including the cheques given by NKPL for raw material claimed to have been purchased from them. The address of this party given to the bank was also fictitious. Shri Nileshbhai Patel, director of the appellant-company in reply to question No. 10 of his statement recorded under Section 132(4) on 6th April, 1999 inter alia stated that he was buying raw material from Karnavati Industries through Lalchand broker. The address of Shri Rasik K. Patel, owner of Karnavati Industries, was found out by the Department. The summons under Section 131(1A) were issued to him and his statement was recorded on 3rd June, 1999. The relevant portion of his statement reproduced at pp. 25 to 27 of the assessment order is as under : Extracts from statement of Shri Rasik K Patel, proprietor of Karnavati Industries : Ans. I am earning Rs. 1,500 as salary. I am working as a peon. I don't have any other source of income. Some time back, I was doing miscellaneous work for N.K. Proteins and N.K. Industries' Shri Nileshbhai Patel for which I was getting Rs. 3,000 per month.

Ans. I was introduced to Nileshbhai Patel by Shri Jagabhai Patel of Jotana who is doing business in Ahmedabad and is residing in Mehsana. Because of this I was working for Shri Nileshbhai Patel.

Ans. I was on the directions of Nileshbhai Patel signing cheque books, bill books and other papers and handing them over to Nileshbhai Patel. In lieu of all these, he was paying me Rs. 3,000 per month.

Q. 5 What is your relationship with Karnavati Industries, D-639, Bejee Towers, O/s Delhi Darwaja, Ahmedabad? Ans. I had signed applications of Karnavati Industries for sales-tax registration and account opening form in Visnagar Nagrik Sahakari Bank Ltd., Usmanpura Branch on the directions of Shri Nileshbhai Patel. Thereafter, I had signed blank cheque books and bill books of this concern and handed over to Shri Nileshbhai Patel. I have not done any business in the name of Karnavati Industries. What business is going on in this name, I don't know. If any sale or purchases has been done in the name of Karnavati Industries the entire work has been done by Shri Nileshbhai Patel. I don't have any share in the profit and loss arising out of business in the name of Karnavati Industries. I don't have anything to do with the activities of Karnavati Industries. If there any income or loss has arisen, it has gone to Shri Nileshbhai Patel.

Q. 6 In which banks, the accounts of Karnavati Industries have been opened? Ans. The account of M/s Karnavati Industries was in the Visnagar Nagrik Sahakari Bank Ltd., Usmanpura Branch but I have never visited the bank for any work pertaining to Karnavati Industries Q. 7 Have you ever purchased or sold goods in the name of Karnavati Industries or have you ever delivered goods in the name of Karnavati Industries? Ans. No, I have never sold or purchased goods in the name of Karnavati Industries If any sale or purchase has been done, it has been done by Shri Nileshbhai Patel.

Q. 8 I am showing you loose paper file A/22 pp. 93 to 97 which has been seized from the 9th floor office of N.K. Proteins Ltd. during the income-tax search. These are blank cheques of account No. 4046 of Visnagar Nagrik Sahakari Bank Ltd., Usmanpura Branch in the name of Karnavati Industries Have you signed on these cheques? Q. 9 Now I am showing you loose paper file A/22 pp.-82 to 91 which are cheques of Visnagar Nagrik Sahakari Bank Ltd., Usmanpura Branch pertaining to N.K. Proteins Ltd. Have you signed on back of these cheques? Q. 10 Why did you sign on the back of the cheques of N.K. Proteins Ltd.? Ans. Reasons I don't know. I have signed as per the instructions of Nileshbhai Patel.

Q. 11 Have you ever sold and delivered anything to M/s NK Proteins Ltd.? Ans. No, till date I have neither sold anything nor delivered anything to M/s N.K. Proteins Ltd. Q. 12 You have shown the address of Karnavati Industries as D-639, B.G. Towers O/s Delhi Darwaja, Ahmedabad but there is no shop/office numbered D-639, in BG Towers. What is the reason of giving this address? Ans. The address has been given by Shri Nileshbhai Patel. I had just signed sales-tax papers, bill books, account opening forms and cheque books and handed over to him. I had not given the address.

The AO on the basis of aforesaid facts and other similar reasons discussed in the assessment order, came to the following conclusion : (b) It is controlled and operated by Nilesh Patel, who is director of the assesses-company and handling the day-to-day affairs of the assessee.

(c) The address given by Karnavati Industries to the bank is fictitious.

(d) So-called raw material purchased from Karnavati Industries were never received in the factory of NKPL (as it is evident from the inward register) (e) M/s NKPL is inflating purchases by showing bogus purchases from Karnavati Industries.

(f) The money deposited in the bank account of Karnavati Industries is withdrawn by N.K. Group of concerns by means of blank signed cheques found during the course of search.

14. The AO issued a show-cause notice dt. 4th Dec., 2000 to the assessee which has been reproduced on pp. 2 to 4 of the assessment order. In this show-cause notice, the AO clearly stated that inquiries made by the Department revealed that the purchases made from these parties appeared to be bogus. The gist of inquiries so conducted along with the copies of relevant statements and affidavits of bogus suppliers had also been provided along with the letter dt. 4th Dec., 2000. The assessee submitted a reply dt. 15th Dec., 2000 stating that the entire purchases made from these parties are duly recorded in the books of accounts in the normal course before the date of search and therefore it does not fall within the purview of block assessment. The AO once again issued a show-cause notice dt. 8th Jan., 2001, which is reproduced at p. 28 of the assessment order. The assessee submitted a reply dt. 22nd Jan., 2001 which has been reproduced in para 6.3 on pp.

28 to 30 of the assessment order. The AO considered various replies and gave following findings in paras 6.4 to 6.6 on pp. 30 to 34 of the assessment order: "6.4 The reply of the assessee is carefully considered. The assessee has raised following arguments in its favour, (i) It is argued by the assessee that the entire purchases are duly recorded in the books of accounts in the normal course before the date of search, therefore, it does not fall within the purview of block assessment.

(ii) The assessee has submitted that, if the purchases made from the above parties are not considered, then production of oil and cake becomes more than the consumption of seeds which is not possible.

(iii) The assessee submitted that it has purchased the goods from these parties and made the payments through account payee cheque which is not disputed by these parties.

(iv) Statements and affidavits given by these parties appear to be similar which is not possible. The assessee has also submitted copy of account of these parties and the details of purchases made from these parties alongwith the details of transportation and other supporting evidences.

6.5 The arguments raised by the assessee are carefully considered and the submission of the assessee is not acceptable on following grounds: (i) The assessee has put forth the argument that the purchases from the said parties are duly recorded in the books of accounts before the date of search, therefore, it does not fall within the purview of block assessment. This contention is not correct. If any evidence is found during the course of search, then that will be considered in the block assessment and on the basis of that evidence if any undisclosed income is determined, then it will be brought to tax in the block assessment. During the course of search, certain blank signed cheque books, blank bills and vouchers of abovementioned concerns were found and seized. On the basis of these evidences it is seen that all these concerns are fictitious and bogus and the purchases from these are bogus. These evidences come to light as a result of search. These are, therefore, to be considered in the block assessment and not in regular assessment.

(ii) The next argument of the assessee is that, if the purchases made from the above parties are excluded, then production of oil and cake becomes more than the consumption of seeds. The contention of the assessee has been verified and found to be incorrect. In financial year 1998-99 the assessee has shown yield of oil at 98.73 per cent. If purchases from abovementioned parties are excluded then revised yield of the oil comes to 102.61 per cent. The contention of the assessee is not correct. From the evidences found during the search, it is clearly established that these parties are bogus parties from which the assessee has shown purchases to inflate its purchases and reduce its profit. This is the real fact, which is established on the basis of evidences found at the time of search.

From the evidences found during the course of search, it is also established that Triveni Corporation is fictitious one to whom the assessee has shown sale of goods. The assessee has also shown sale to Karnavati Industries which is also a bogus concern. If the quantity of this sale is reduced, then the revised yield would be less than 100 per cent.

(iii) The assessee filed affidavits purported to be of four proprietors. It is very important to mention here that the signatures on two affidavits filed by the assessee do not tally with the signatures on the affidavit filed before the Dy. DIT. This shows that the assessee has fabricated these affidavits. These affidavits cannot be relied upon.

(iv) During the course of search, blank signed cheque books, printed bill books and vouchers were seized from the office and factory premises of N.K. Proteins Ltd. and N.K. Industries Ltd. Shri Nileshbhai Patel who is the main person handling the day-to-day affairs pf the assessee-company made a very vague submission during search that "he was having sales and purchases from Karnavati, Vimal and Tirupati Corporation As a result, he had to give payments to these concerns and was to take money from them. For these reasons he had taken blank signed cheques from these concerns. There were signatures of these parties with stamp at the back side of the cheques so that any one could have withdrawn money from the accounts".

In his statement Shri Nilesh Patel admitted that any one could have withdrawn money from these bank accounts. As already discussed in preceding paras that all the proprietors have categorically stated in their affidavits and statements that these bank accounts are under control of Shri Nilesh K Patel who is supervising the affairs of the N.K. Group. The assessee-company had full access to these bank accounts. This is supported by the fact that blank signed cheque books, bill books were found from the office of the assessee.

Therefore it is very much clear that these concerns are bogus concerns.

(v) As discussed supra that during the course of enquiries, statements of these proprietors were recorded. These statements have already been discussed in the preceding paras. In these statements all these proprietors have categorically denied having any genuine trading or financial transaction with N.K. Industries Ltd. They have also stated that they opened these bank accounts on the direction of Shri Nilesh K. Patel who was incharge of the assessee-company and they handed over the signed cheque books and bill books to Shri Nilesh K. Patel. These proprietors have also filed affidavits to this effect to substantiate their statements.

(vi) The filing of affidavit of one of the proprietors, is only an after thought. The affidavit is found to be fabricated. The argument of assessee, therefore, fails.

(vi) The assessee has raised another argument that all the documentary evidences of purchases from these parties have been furnished which establish that the assessee had purchased goods from these parties. Such evidences are nothing but merely copies of purchase bills, etc. As discussed earlier, these were prepared by assessee only. This is a case of well-devised mechanism of inflating purchases. This is a case of wilful evasion of tax.

6.6 From the above discussion, it is very much clear that these are the bogus concerns from which the assessee has shown purchases to inflate its total purchases. Total purchases from these concerns shown by the assessee in its books of accounts comes to Rs. 11,99,07,754. Therefore, an amount of Rs. 11,99,07,754 is considered as bogus purchases and added back to the total income of the assessee in respective assessment years, being bogus purchases. The yearwise break up is as under : 15. The assessee preferred an appeal before the CIT(A) against the aforesaid order. The assessee submitted written submissions before the CIT(A) in which the assessee gave para-wise reply to the various findings and conclusions arrived at by the AO in paras 6.4 to 6.6 of assessment order. The relevant extract from the written submissions are reproduced below : Extracts from written submissions made by the assessee before the CIT(A) : 2.5.2 The learned AO stated that since certain material such as blank signed cheques, blank bills, vouchers bills, etc. are found during search, income has to be considered as undisclosed income and form part of the block assessment. The view expressed is not correct.

For the purpose of finding out any undisclosed income, two conditions have to be fulfilled; (i) that there should be search material and (ii) the income arising from such search material has not been disclosed or would not have been disclosed.

In the present case, though there is a search material, the purchases are recorded in the normal course. The income-tax return for asst, yr. 1998-99 was submitted before search and as regards asst. yr. 1999-2000 the purchases are recorded in the normal course and are to be excluded from undisclosed income as provided in Section 158BA(3). Therefore such purchases, even if it is treated as bogus cannot form part of the block assessment. This view is upheld by the Gujarat High Court in the case of CIT v. N.R. Paper & Boards Ltd. (2001) 248 ITR 526 (Guj).

2.5.3 The purchases can be considered as bogus when the identity of the supplier is not established and goods are not received. In the present case, the identity of the supplier is established inasmuch as some of them have filed the affidavits and some of them have given statements. The goods purchased are actually received and the payment is made by cheque. The suppliers hold sales-tax number and such number is printed on bills. The AO has not made any inquiry with sales-tax department.

2.5.4 Certain blank cheques, bills, vouchers, etc. were found from the factory premises of the company. In this connection, it may please be noted that the blank cheques/bills were kept at the factory premises of the company for the sake of convenience.

2.5.5 It may please be noted that only few cheques/bills were found as against thousand entries as per copy of account and bank statement enclosed. From the bank statements, it may also be seen that, for example, in case of Karnavati Industries, there are number of other transactions in comparison with only one transaction with the company. The name of outsiders are also appearing in the bank statement, which proves that such suppliers are having transactions with outsiders. Therefore, such suppliers cannot be treated as non-genuine.

2.5.6 The affidavits and statements of the said suppliers, to the effect that they have not sold goods to NKPL and that they have given their signature on the blank bills at the instance of Nilesh K. Patel--managing director of the company cannot be relied for following reasons: 2.5.6.1 They are obtained under Section 131(1A) by Addl. DIT He has no power whatsoever to make inquiry after conclusion of search and to record the statements and obtain affidavits under Section 131(1A).

2.5.6.2 From the affidavits and statements, it may please be seen that the contents are similar. The type of question and the inquiries are same which show that they are recorded and obtained under undue influence and coersion.

2.5.6.3 The affidavits filed by the assessee from the said persons are not taken into account on the ground that the signature in one case vary. If such is the case, then the learned AO should have summoned the said persons and found out the truth or the genuineness of the signature.

2.5.6.4 The affidavits submitted by the assessee at the time of assessment state that the statements and affidavits given before Addl. DIT were under influence and coersion and that such statements and affidavits stand cancelled. He further stated that he was carrying on the business independently and that he used to deal in the seeds/oil and that he has not taken any help or assistance for carrying on business from Nilesh K Patel--managing director of the company: 2.5.6.5 Without examining the suppliers, one cannot conclude that the suppliers are bogus and therefore the purchases made from such suppliers are bogus, without looking into the fact that the goods are actually received and the payment is made by cheque.

2.5.7 In fact, evidences in support of receipt of goods in form of inward register, date of entry, quantity received, MRS No., report No. along with xerox copy of the purchase bill, weighment slip, transporter's LR, etc, and comparative statement of market rate for the purchases made from the said suppliers and others were furnished along with letter dt. 26th Dec., 2000 as stated in letter dt. 22nd Jan., 2001 (reproduced in the assessment order on page No. 28). The entire file containing the said papers was given to the AO at the time of assessment. The request was made by letter dt. 22nd Jan., 2001 (reproduced on page Nos. 28 and 29 of the order) to verify the abovereferred details with reference to inward register and stock register which were seized by Department. The copy of the said file is being produced before your honour for verification. The quantity so received have been entered in day-to-day stock register. Such quantities are issued for production and finished goods are sold. Further no defects are pointed out in the books of accounts and stock records.

2.5.8 Further, the assessee has already furnished the quantity details (reproduced on page No. 29 of the order) and it is shown that, if the purchases are ignored the yield would be 102.45 per cent (financial year 1997-98) and 102.61 per cent (financial year 1998-99) as disclosed. The learned AO has observed in para 6.5(ii) on page No. 31 of the order as under: "From the evidences found during the course of search, it is clearly established that these parties are bogus parties from which the assessee has shown purchases to inflate its purchases and reduce its profit. This is real fact which is established on the basis of evidences found at the time of search. From the evidences found during the course of search it is also established that Triveni is fictitious one to whom the assessee has shown sales of goods. The assessee has also shown sale to Karnavati Industries which is also a bogus concern. If the quantity of this sale is reduced, then the revised yield would be less than 100 per cent." The learned AO failed to appreciate the submission of the assessee that there cannot be yield of more than 100 per cent. In the present case, yield would be 102.45 per cent (financial year 1997-98) and 102.61 per cent (financial year 1998-99) as against 99.01 per cent (financial year 1997-98) and 98.73 per cent (financial year 1998-99), if alleged purchases are excluded. The learned AO has observed that sales to Karnavati Industries and Triveni being bogus concerns, if ignored, yield would be less than 100 per cent.

The view taken is not proper inasmuch as the sales to Karnavati Industries and Triveni Corporation is recorded in the books of accounts and quantity is also recorded in the stock register.

Therefore, quantity of sales cannot be ignored for the purpose of working out yield, Further, even if sales quantity to Triveni Corporation and Karnavati Industries is excluded to calculate the yield, the yield would be more than 100 per cent if alleged purchases are excluded. In other words, the learned AO has not met with the contention of the assessee. This shows that the contentions raised by the assessee are correct.

From the above, it is very clear that there cannot be production of more than 100 per cent. Since the production is 102.45 per cent (financial year 1997-98) and 102.61 per cent (financial year 1998-99) if the alleged purchases are excluded, it proves that the purchases are genuine and actually made and used for the production.

2.5.10 The assessee has purchased oil from such suppliers and after processing the same, the sales are effected. The fact that the sales are effected out of such oil process proves that the material was actually received, since the sales cannot be effected otherwise.

2.6 It is clear that the assessee has made purchases from the said suppliers, which is genuine for the reasons stated below : 2.6.2 The suppliers are dealers in seeds/oil as confirmed by the suppliers in their affidavits submitted at the time of assessment.

2.6.4 The quantity is actually received and entry in the stock register is made and is consumed for production and finished goods are sold. 2.6.5 If the quantity of alleged purchases are excluded, then yield would be 102.45 per cent (financial year 1997-98) and 102.61 per cent (financial year 1998-99), which is not possible.

2.6.6 The suppliers hold sales-tax number and such number is printed on bills. The AO has not made any inquiry with sales-tax department.

[Sagar Bose v. ITO (1996) 56 ITD 561 (Cal) copy enclosed].

2.6.7 The learned AO did not examine the suppliers though the affidavits were filed and did not find out the truth between the affidavits and statements recorded by Addl. DIT and affidavit filed at the time of assessment.

2.6.8 The affidavits and statements made before Addl. DIT were under undue influence and therefore not reliable. Further, such affidavits and statements were recorded under Section 131(1A). The Addl. DIT has no power under Section 131(1A) to record such statements and affidavits after the conclusion of search and therefore no reliance can be placed on such statements and affidavits.

2.6.9 The addition is based on the finding given by Addl. DIT in the appraisal report and that the learned AO has not adduced any evidence for treating the purchases as not genuine.

2.7.1 That purchases are genuine and therefore there is no question of any addition.

2.7.2 Even if presumed that the purchases are bogus, the company has received the quantity entered in the stock register, consumed and finished products are sold. Therefore, addition cannot be made.

2.7.3 In any case purchases are duly recorded in the books of accounts in the normal manner and therefore it does not form part of block assessment." 17. It may also be relevant here to reproduce the affidavits of all the suppliers submitted by the assessee before the AO during the course of assessment proceedings, in which they have retracted from their earlier affidavits/statements given to the Addl. DIT and Dy. DIT. (i) The affidavit dt. 12th April, 2001 of Shri Jaysukhlal Jamnadas Doshi, who is proprietor of Adinath Corporation and Tirupati Corporation appearing at p. 126 of the paper book dt, 1st July, 2002 is reproduced below: "I, Jaysukhlal Jamnadas Doshi, aged about...... residing at A/5, Navprasthan Apartments Nr. Bhavsar Hostel, Nava Wadaj, Ahmedabad do hereby solemnly affirm that at present Pratik, B/5, Agashi Road, Virar (W), 1. I had given an affidavit on 18th June, 1999 at the instance of Dy. DIT, Unit-3.1. This affidavit was made under pressure and coercion of Dy. DIT and was made as per his direction and therefore is stands cancelled. The facts stated in the said affidavit are not correct. I again made fresh affidavit stating the correct facts after cancelling the original affidavit.

I had been carrying on business as dealer in oil and oil seeds as proprietor of Adinath Corporation and Tirupati Corporation. I sold cotton wash oil to N.K. Proteins Ltd. during the year 1998 from Adinath Corporation and during the year 1996-97 and 1997-98 from Tirupati Corporation. I use to make the profit about Rs. 1,000 Rs. 2,100 per tanker from carrying on the said business. The profit or loss from the said business belongs to me and that Nileshbhai Patel of N.K. Proteins Ltd. had no interest whatsoever in the said profit or loss. I have not received any remuneration from Nileshbhai Patel.

I was acting independently for opening bank account, for operation of the bank account, for making application for sales-tax number and any other work for the purpose of carrying on said business and that there was no pressure from Nileshbhai Patel in this connection. The bill book and cheque book were kept at the office/factory of N.K. Group only for business convenience.

I hereby again specifically declare that the statement given on 18th June, 1999 was under pressure and coercion and therefore such affidavit stands cancelled.

This affidavit is made voluntarily and willingly without pressure from anybody.Dt.: 12th April, 2001 Sd/-Place: Virar Seal of Notary" The contents of aforesaid affidavit have been reproduced at p. 13 of the order of CIT(A) also.

(ii) The affidavit of Shri Dineshbhai Chaturbhai Patel, proprietor of Vimal Industries appearing at p. 129 is reproduced below ; "I, Dineshbhai Chaturbhai Patel, proprietor of Vimal Industries aged about 35 years residing at 5/54, Bhagyalaxmi Apartments Nr. Bhavsar Hostel, Nava Wadaj, Ahmedabad do hereby solemnly affirm that 1. I had given a statement on 2nd June, 1999 before Dy. DIT, (Unit-3)-I and also made affidavit dt. 18th June, 1999 as per his direction. The statement and affidavit were given under pressure and coercion of Dy. DIT and according to his direction. The facts stated in that statement and affidavit were not fully correct and therefore statement dt. 2nd June, 1999 and affidavit made on 18th June, 1999 stand cancelled. The correct facts are as under: 2. I was serving with N.K. Proteins Ltd. during 1995-96 and thereafter, I started carrying on business as dealer in oil and oil seeds under the name and style of Vimal Industries independently. I sold cotton seeds wash oil to N.K. Proteins Ltd. during 1998-99 and I used to make the profit of about Rs. 1,800 per tanker from carrying on of the said business. I have not taken any help from Nileshbhai Patel of N.K. Proteins Ltd. or he has not given any instruction to me for making application for sales-tax number, opening of bank account, operation of bank account for the purpose of said business. The office of Vimal Industries was situated at 105/1, Amrut Industrial Estate, Opp.: Water Tank, Dudheshwar Road, Ahmedabad. The bill book and cheque books were kept at the office of N.K. Proteins Ltd. for the business convenience. I signed cheque book only for the sake of business convenience and that I did not sign the cheques at the instance of Nileshbhai Patel. The profit or loss from the said business belongs to me and that Nileshbhai Patel of N.K. Proteins Ltd. had no interest whatsoever in the said profit or loss. Nileshbhai Patel did not pay any remuneration. I was carrying on the said business independently and Nileshbhai Patel has no control whatsoever over it.

I hereby again specifically declare that the statement recorded on 2nd June, 1997 and affidavit dt. 18th June, 1999 thus stands cancelled.

This affidavit is made voluntarily and willingly without pressure from anybody.Dt. : 23rd Feb., 2001 Sd/-Place: Seal of Notary" (iii) The affidavit of Shri Rajesh K. Patel, proprietor of Krishna Industries placed at p. 132 of the paper book is also reproduced below : "I, Rajesh K. Patel, Prop of Krishna Industries, aged about 30 years residing at B-18, Shantisadan Society, Vejalpur, Ahmedabad do hereby solemnly affirm that, I had given a statement on 3rd June, 1999 before Dy. DIT, (Unit-3)-l. The said statement was given under pressure and coercion of Dy. DIT and was given according to his direction. Certain facts stated therein are not correct and therefore statement dt. 3rd June, 1999 stands cancelled. The correct facts are as under: I was carrying on business as dealer in oil and oil seeds under the name and style of Krishna Industries. I sold cotton seeds wash oil to N.K. Proteins Ltd. during 1998-99. I used to make the profit of about Rs. 1,800 to Rs. 2,000 per tanker from carrying on of the said business. I have not taken any help from Nileshbhai Patel of N.K. Proteins Ltd. for opening of bank account, for making application for sales-tax number, and for operation of bank account for the purpose of said business. I was carrying on the said business independently. I did not receive any instructions from Nileshbhai Patel for the purpose of carrying on of the business. The cheque book and bill books of Krishna Industries were kept at the office of N.K. Proteins Ltd. for the business convenience since there was no permanent office of Krishna Industries. I signed cheques only for the business convenience and in that there was no instructions or interference from Nileshbhai Patel. The profit or loss that may arise from carrying on of the said business belongs to me and that Nileshbhai Patel had no interest whatsoever in the said profit or loss. I did not receive any remuneration from Nileshbhai Patel.

I hereby again specifically declare that the statement dt. 3rd June, 1999 stands cancelled since they are given under pressure and coercion.

This affidavit is made voluntarily and willingly without pressure from anybody.Dt.: 23rd Feb., 2001 Sd/-Place: Virar Seal of Notary" (iv) The affidavit of Shri Rasik K. Patel, proprietor of Karnavati Industries placed at p. 135 of the paper book is reproduced below ; "I, Rasik K Patel aged about 28 residing at 49, First Floor, Abhishek Society, Meghaninagar, Ahmedabad and proprietor of Karnavati Industries do hereby solemnly affirm that, 1. I made one affidavit on 18th June, 1999 as per direction of Dy.

DIT, (Unit-3)-1 and also gave a statement on 3rd June, 1999 before him. The above referred statement and affidavit were given under pressure and coercion of Dy. DIT and as per his direction. Certain facts therein are not correct and therefore affidavit dt. 18th June, 1999 and statement dt. 3rd June, 1999 stand cancelled. The correct facts are as under : I was carrying on business as dealer in oil and oil seeds at Siddhpur before some time under the name and style of Karnavati Industries. I sold cotton seeds wash oil to N.K. Proteins Ltd. during the year 1998-99 and I used to make the profit about Rs. 2,000 per tanker from carrying on of the said business. I opened bank account with M/s Visnagar Nagrik Bank in the name of Karnavati Industries and for this purpose I have not taken any help from Nileshbhai Patel of N.K. Proteins Ltd. The cheque book and bill book were kept at the office of N.K. Proteins Ltd. for the purpose of business convenience since there was no permanent office of Karnavati Industries. I was carrying on this business independently and there was no control of Shri Nileshbhai Patel over the said business. The profit or loss that may arise from carrying on of the said business belongs to me and that Nileshbhai Patel had no interest whatsoever in the said profit or loss. I have not received any remuneration from Nileshbhai K, Patel.

In reply to Q. No. 2 of the statement dt. 3rd May, 1999 that I was introduced as peon, which is not correct. In fact, I am carrying on business as dealer in oil and oil seeds. I act independently. For making application for sales-tax number and opening of bank account for the purpose of business and Nileshbhai Patel does not give me any instructions in this regard. Signature made on cheque book is only for the purpose of business convenience and it is not done at the instance of Nileshbhai.

I hereby again specifically declare that affidavit dt. 18th June, 1999 and statement dt. 3rd June, 1999 stands cancelled since they are given under pressure and coercion.

This affidavit is made voluntarily and willingly without pressure from anybody.

18. The learned CIT(A) has discussed this issue in para 6 on pp. 5 to 21 of his order. The main discussions have been made by him in relation to the purchases claimed to have been made from Adinath Corporation.

The learned CIT(A) has observed that the plea of the assessee that Dy.

DIT has got no power to make inquiries after the search is over, is not acceptable in view of the decision of the Hon'ble Gujarat High Court reported in Arti Gases v. DIT (2001) 248 ITR 55 (Guj). The contention that no reliance can be placed on statement and other enquiries and materials collected by Dy. DIT, is also not correct, as Section 158BB of the Act specifically refers to the words "other materials" which can also be taken into consideration. The learned CIT(A) also observed that the judgment of the Hon'ble Gujarat High Court in the case of N.R.Paper & Board Ltd. and Ors. v. Dy. CIT (1998) 234 ITR 733 (Guj) has no application to the facts of the present case, as the blank bills, blank signed cheque books etc. of these bogus suppliers were found and seized during the search. The documents found and seized during the search exposed the falsity of entries made in the books of accounts. The decision in the case of N.R. Paper Board v. Dy. CIT (supra) is not relevant. The CIT(A) also observed that first affidavits submitted by these suppliers must be relied upon as some of those affidavits were given before the Metropolitan Magistrate or those represent statements on oath. The burden lies on the assessee to prove that there was any pressure or coercion. Reliance was placed by the learned CIT(A) on the judgments reported in V. Kunhambu & Sons v. CIT (1996) 219 ITR 235 (Ker) and Param Anand Builders (P) Ltd. v. ITO (1996) 56 TTJ (Mumbai) 21 : (1996) 59 ITD 29 (Mumbai). The CIT(A) also placed reliance on the judgment of the Hon'ble Delhi High Court in the case reported in CIT v.La Medica (2001) 250 ITR 575 (Del). The CIT(A) has also observed that the legal issues raised in respect of purchases made from all these bogus suppliers are common and have been dealt with in the case of Adinath Corporation, The CIT(A) has given elaborate reasons while confirming the addition of bogus purchases aggregating to Rs. 11.99 crores.

19. The learned counsel appearing for the assessee reiterated elaborate arguments made before the learned Departmental authorities. Shri A.C.Shah submitted that the entire findings given in the assessment order are based on affidavits and statements obtained by Addl. DIT under Section 131(1A). The AO has simply placed reliance on appraisal report sent by Addl. DIT/Dy. DIT and has reproduced the affidavits/statements of the alleged bogus suppliers. The AO has not made any independent examination in the course of assessment proceedings. The assessment proceedings are quasi-judicial proceedings. The burden lies on the AO to prove by bringing positive material and evidence on records to prove that the purchases made by the assessee from various suppliers were not genuine purchases. No reliance can be placed on the affidavits/statements of the suppliers obtained behind the back of the assessee unless the assessee is allowed to cross-examine them.

20. The learned counsel further stated that the assessee has submitted affidavits made by the suppliers at the time of assessment. The AO did not examine the deponents. In the absence of examination, the contents of the subsequent, affidavits submitted before the AO are binding and there is no justification in placing reliance on earlier statements/affidavits which were obtained by the Addl. DIT/Dy. DIT under pressure and coercion. Reliance has been placed on the judgment of the Hon'ble Supreme Court in the case of Mehta Parikh & Co. v. CIT (1956) 30 ITR 181 (SC) and the judgment of the Hon'ble Gujarat High Court in the case of Glass Lines Equipments Co. Ltd. v. CIT (2001) 253 ITR 454 (Guj). The learned counsel contended that the five suppliers in question may be billing agents or name lenders but they are not the billing agents or name lenders of the assessee. They may be billing agents of others. This is evident from the fact that the total credits in the bank accounts of all these alleged bogus suppliers as per chart in the order of the CIT(A) at p. 9 is more than Rs. 31 crores whereas the purchases made by the assessee from these concerns were only of Rs. 11.99 crores. The bank accounts of only one of these five suppliers viz. Adinath Corporation was introduced by Shri Nileshbhai K. Patel as director of N.K. Proteins Ltd. The Department has failed to verify as to which other parties have made payments by cheques to these five alleged bogus suppliers, which have been deposited in their bank accounts.

21. The learned counsel further submitted that so far as the assessee is concerned, they have proved by producing documentary evidence of contemporary period that the goods in fact were received by the assessee. Such material was consumed in manufacture of goods which is supported by corresponding sales. The statement of yield obtained by the assessee were also given before the learned Departmental authorities. Summary thereof has been placed at pp. 14 to 16 of the paper book. If the purchases made from these five parties are excluded, the yield would be more than the raw material consumed, which is impossible. The learned counsel also drew our attention to written submissions regarding receipt of material furnished at p. 12 of the paper book dt. 1st July, 2002 in which attention has been invited towards assessee's letter dt. 22nd Jan., 2001. Our attention was also invited towards reply to question No. 25 of statement of Shri Kamleshbhai L. Patel. It has been stated in the said written submissions that the inward register is seized. All the purchases made from these parties are duly recorded in the inward register and have properly been accounted for in the books of accounts. The assessee contended before the AO that the same can be verified with reference to inward register, stock register and books of accounts. The AO has accepted the aforesaid statement of facts made before him inasmuch as he has not given any adverse comments in the assessment order to the aforesaid submissions made in letter dt. 22nd Jan., 2001. Our attention was also specifically drawn to the remand report submitted by the AO vide letter dt. 26th Dec., 2001 in reply to letter from CIT(A). The relevant extract from the remand report dt. 26th Dec., 2001 appearing at pp. 33 and 35 are reproduced below : "However, a test check of the purchase bills and other supporting document with reference to seized inward register, stock register, etc. relied by the assessee have been verified and it is found that the entries in respect of the purchases made from the above parties are entered and consumed. The price paid for the purchase of goods from the above referred parties are made at more or less at the same rate paid to other parties.

4.1 The issue raised by the assessee is non-existent. The addition in the assessment order was made on account of inflation of purchase and not because the rates are inflated but purchases itself are inflated. Therefore, the issue raised by the assessee has no relevance with the addition made: In the assessment order. However, a test check of the rates have been made and it is found that the assessee has purchased the materials more or less at the same rate at which they have shown to have purchased from other genuine parties." 22. The learned counsel also submitted that a detailed inventory of stocks found during the course of search was prepared by authorised officers. The assessee was required to submit an explanation with regard to stocks found during the course of search. After considering the explanations submitted by the assessee, the AO has not made any addition in respect of unexplained stocks found during the course of search. This proves beyond doubt that the stock as per stocks register and other records found during the course of search was fully verifiable and no unexplained stocks were found during the search. This supports the genuineness of purchases made from these alleged bogus parties and also proves the receipt of material purchased from them.

23. The AO had also compared the purchase price of the material purchased from these parties with the prevailing market price at which the purchases were made from other regular dealers. In the aforesaid remand report he has also confirmed the fact that the purchases from these five parties were made at prevailing market price. It cannot therefore be a case of inflation of purchase price also.

24. The declared trading results are supported by books of accounts which are regularly maintained. The correctness and completeness and regularity of method of accounting followed by the assessee has not been doubted. The entire purchases and sales are supported by vouchers.

The stocks are periodically checked by civil supply authorities. No defects have been pointed out by the AO in the books of accounts and records maintained by the assessee. Our attention was also drawn to the Circular No. 387, dt. 6th July, 1984 published in (1985) 152 ITR (St) 12, In the said circular the scope and effect of Section 44AB has been explained. The said provision requiring compulsory tax audit was introduced with a view to ensure that the books of accounts and other records are properly maintained and that they faithfully reflect the income of the tax payers and claims for deductions are correctly made by him. Such audit would also help in checking fraudulent practices.

The learned counsel contended that the auditors have given an unqualified report in this regard. The genuineness of the purchases are supported by vouchers and are also supported by all records of contemporary period such as gate inward register, MRS No., purchase bills, weighment slips, material inward receipts, transportation LR, analysis report, etc. The correctness thereof is further supported by payments having been made by crossed cheques/account payee cheques to those suppliers.

25. The learned counsel submitted that the four affidavits of all the alleged bogus suppliers were submitted by the assessee during the course of assessment proceedings which have been brushed aside merely by stating that the signatures on two affidavits are different. No further inquiries were made by the AO. The suppliers were not examined with reference to the contents of those affidavits. The subsequent affidavits submitted by the assessee clearly reveal that the earlier statements/affidavits were obtained under coercion. The subsequent affidavits should be relied upon in the absence of any cross-examination or in the absence of any material brought on record by the AO in rebuttal thereof. The learned counsel also submitted that the CIT(A) has placed reliance on the affidavit dt. 18th June, 1999 of Shri Jaysukhlal J. Doshi given to Dy. DIT. He submitted that this affidavit is purported to have been signed before the Metropolitan Magistrate at Ahmedabad. How could it be sent by post to Dy. DIT at Ahmedabad. Moreover the address of Shri J.J. Doshi given in this affidavit is A/5, Navprasthan Apartment, Nr. Bhavsar Hostel, Nava Wadaj, Ahmedabad which is the same as the address given by Shri J.J.Doshi while opening the bank account in the name of Adinath Corporation. The contention of the Revenue that Adinath Corporation had given false address while opening the bank account, is therefore patently wrong in view of such evidence gathered by the Department itself behind the back of the assessee. The learned counsel also submitted that the signature of Shri J.J. Doshi on the affidavit dt, 12th April, 2001 submitted by the assessee during the course of assessment proceedings exactly tallies with the seized cheque of Adinath Corporation submitted by the Department in their paper book at p. 1. Both the signatures can be compared which will support the correctness of this contention. The learned counsel further contended that let us examine the contents of the affidavit dt. 18th June, 1999 obtained by Dy. DIT behind the back of the assessee. In this affidavit also Shri J.J. Doshi has confirmed that he was carrying on the business as dealer in oil and oil seeds at Ahmedabad and at present he formed a company known as "Toran Oil (P) Ltd." at Udaipur. This shows that Shri Doshi was an old and established dealer in oil and oil seeds. In the subsequent affidavit dt. 12th April, 2001, Shri J.J. Doshi has clearly stated that the statement given on 18th June, 1999 was under pressure and coercion and therefore, such affidavit stands cancelled. The learned CIT(A) has observed that the burden lies on the assessee to prove that coercion was exercised. The learned counsel contended that the fact or coercion has been stated by Shri J.J. Doshi in rebuttal of affidavit directly obtained by the Department from him on 18th June, 1999. Therefore, it was a matter between the Department and Shri J.J.Doshi. The assessee is under no obligation to prove the fact of exertion of coercion. The affidavit dt. 18th June, 1999 given by him has been relied upon by the AO. Before placing reliance on the said affidavit, the AO should have produced Shri J.J. Doshi for cross-examination by the assessee or he should have discharged the burden of proving that the contents of second affidavits about exercise of coercion is wrong. Such a burden had to be discharged by the Dy. DIT or AO by summoning Shri J.J. Doshi and further interrogating him on this point. No such action was taken by the AO and therefore the Department cannot validly place reliance on the first affidavit dt.

18th June, 1999 of Shri J.J. Doshi. On the other hand, they ought to have accepted the contents of subsequent affidavit dt. 12th April, 2001 submitted before the AO Shri A.C. Shah explained that the language, tone, tenure and the contents of affidavits/statements of all four suppliers are similar. It, therefore, clearly appears that those affidavits have been prepared by Dy. DIT or Addl. DIT and the suppliers have been compelled to sign those affidavits/statements under pressure and coercion. The subsequent affidavits submitted by the assessee in the course of assessment proceedings are therefore, more reliable and believable.

26. The learned counsel further contended that only few cheques against thousands of entries in bank accounts of these suppliers were found and seized. The assessee has given proper explanation as to why those few documents of those suppliers were lying at the premises of the assessee. The enquiries with the sales-tax department made directly by the officers of IT Department proves the identity of the suppliers. The sales-tax numbers printed on their bills were not found to be false or fabricated. No further inquiries were made by the AO as to whether the sales-tax was paid by these suppliers or not and whether assessments were made in their cases or not.

27. The learned counsel also submitted that all these suppliers had dealings with various other manufacturing concerns/other parties. For this purpose, he drew our attention to the copies of accounts of Karnavati Industries placed at p. 88 of the paper book. He pointed out that out of total credits in the bank account of Karnavati Industries aggregating to more than Rs. 12 crores, the purchases made by the assessee from Karnavati Industries were only of Rs. 38,10,000. The remaining cheques were received by M/s Karnavati Industries from other parties. This necessarily implies that M/s Karnavati Industries were supplying material or issuing bills to various other parties. A perusal of the copy of bank account of M/s Karnavati Industries obtained by the Department also indicates that there are various debits by cheques given to other parties. For example, cheque No. 518492 dt. 18th Feb., 1998 has been given to "Marudhar" for Rs. 9,50,000; cheque No. 518491 dt. 18th Feb., 1998 has been given to "Mayur" for Rs. 9,50,000; cheque No. 518490 dt. 18th Feb., 1998 has been given to "Sanjay" for Rs. 2,15,000. The AO could easily ascertain the destination of this money by obtaining paid cheques from the bank and interrogating the persons to whom these cheques have been given which have been debited in bank account No. 4046 of M/s Karnavati Industries. Similarly, the learned counsel invited our attention to copy of bank account of Vimal Industries with Mehsana Urban Co-op. Bank. In this account also various cheques have been debited in the column of withdrawals. Those cheques must have been given to some parties. The destination of the money given by such cheques could have been easily verified by the AO by making further inquiries. It may also be relevant here to mention that the total payments in the bank account of Vimal Industries upto the date of search is Rs. 7,26,74,353. The assessee has purchased material from them only to the extent of Rs. 1,48,34,121. The remaining cheques have been received by Vimal Industries from various other parties. The Department has not brought on record the details of cheques received from such other parties. The learned counsel further pointed out that Addl. DIT appears to have obtained copies of bank accounts of these suppliers from the respective banks somewhere in- May/June, 1999.

Copies of bank accounts of various suppliers reveal that the transactions in those accounts have continued in some cases even upto June, 1999. It is an undisputed fact that assessee had not carried out any transactions with them after the search. There is no finding that these bank accounts were closed by those suppliers. All these facts clearly prove that either these five so-called bogus suppliers were genuinely supplying the goods or they were acting as billing agents/name lenders on behalf of some other parties.

28. The learned counsel submitted that the assessee and their entire group cases have undergone the acid test of search and seizure. No unexplained money, bullion, jewellery or stocks and other assets were found from the premises of the assessee. Moreover, the total jewellery seized from the premises of all connected persons was hardly to the tune of about Rs. 16 lakhs besides cash of Rs. 1,87,000 and other assets of about Rs. 13 lakhs. All those assets seized from others (not from the assessee), have either been disallowed as income in their respective returns of income or have been properly explained by all those other persons/concerns of this group. However, it is noteworthy to repeat that no money, bullion, jewellery, stock or any other unaccounted assets were found and seized from the premises of the assessee. This should put an end to the suspicion about existence of having large unaccounted income of several crores, as arbitrarily estimated and added by the AO. The learned counsel contended that the result of search adequately proves an honest and correct declaration of income by the assessee.

29. The AO has placed reliance on the statements of Shri Rajesh broker and Shri Lalchand broker. No reliance can be placed on these statements as those were recorded behind the back of the assessee. The AO has also placed reliance on the statements of Shri Nileshbhai Patel recorded on 6th April, 1999 during the search. All these statements were recorded behind the back of the assessee-company. The assessee-company is a separate and distinct person/entity. Before using these statements against the assessee-company, the AO should have examined Shri Rajesh broker, Shri Lalchand broker, Shri Nileshbhai Patel and other persons during the course of assessment proceedings in the presence of assessee's representative.

30. During the course of hearing the Bench required the learned Departmental Representative to prepare a statement of peak of credit balance in the accounts of the alleged bogus suppliers. The learned senior Departmental Representative submitted the peak stock position in the accounts of these five parties along with the letter dt. 23rd Oct., 2002. A copy of this peak stock statement in the accounts of all these suppliers was handed over to the learned counsel also. A perusal of these accounts indicates that there was a peak credit as under in the accounts of these five parties:Letter dt. 23-10-2002 Peak as on Peak creditTirupati 9-9-97 to 13-2-98 16-1-98 1,54,14,534Adinath 8-4-98 to 7-7-98 14-6-98 97,55,509.50Krishna 27-6-98 to 13-7-98 09-7-98 1,33,21,460Karnavati 3-9-98 to 15-9-98 15-9-98 31,52,513Vimal 15-7-98 to 21-12-98 10-8-98 42,19,470 31. The Bench indicated to the learned counsel that these suppliers have allegedly supplied materials costing several lakhs/crores to the assessee on credit and the assessee has also obtained affidavits from all of them in retraction of their earlier affidavit/statements given to Dy. DIT, there should not have been any difficulty in producing them before the AO. The onus lies upon him to produce these suppliers along with their books of accounts and other relevant records so that their capacity to supply such materials on large scale on credit can be examined along with the examination of genuineness of sales and purchases made by them. The Bench required the learned counsel to produce all these parties before the Tribunal along with their books of accounts, vouchers and other relevant records. The learned counsel after thoughtful consideration, informed on the subsequent date of hearing that the suppliers are not in their control and he will not be able to produce any of the alleged bogus suppliers before the Tribunal, 32. The learned counsel however contended that Section 68 cannot be applied in respect of credit purchases made by the assessee. He submitted that Section 68 is applicable only if any "sum" is found credited. It, therefore, follows that if there is a credit of either cash or cheque, it is "sum" but if the goods are purchased and the account of supplier is credited, that cannot amount to "sum of money" credited in his account. The learned counsel submitted that in the case of Vijay Proteins Ltd. v. Asstt. CIT (1996) 55 TTJ (Ahd) 96 : (1996) 58 ITD 428 (AM) referred during the course of hearing, there was outstanding balance in the account of bogus supplier to the extent of Rs. 17.99 lakhs and that amount was added by the AO. No separate addition was made in that case as the disallowance in respect of bogus purchases was more than the said sum and it was treated as covered by addition made in respect of disallowance relating to bogus purchases.

In the case of the assessee, there is no outstanding balance at the end of the year in the accounts of all these suppliers and no addition has been made by the AO in this regard. Therefore, this point is not the subject-matter of present appeal.

33. The learned counsel submitted that the CIT(A) has erred in placing reliance on the decision of the Hon'ble Delhi High Court in the case of La Medica v. CIT (supra). In that case, it was held that the question of law arises from the order of the Tribunal in view of the facts of that case and it does not lay down any principles of law relating to the point in issue. Likewise the learned counsel explained that reliance placed by the CIT(A) on various other decisions is not correct as the facts of those cases are clearly distinguishable.

34. The learned counsel placed strong reliance on the Mowing decisions : The learned counsel contended that the facts of this case are absolutely similar with the facts of the assessee's case. The Hon'ble Supreme Court has also dismissed SLP submitted by the Department against the said decision which is reported in (2001) 247 ITR 35 (St.). Copy of order passed by the Tribunal in ITA No. 2352/A/1988 dt. 17th Dec., 1998 was also furnished. This order of the Tribunal was confirmed by the Hon'ble High Court in the aforesaid judgment, says the learned counsel. He further pointed out that in para 2.2 of the said order the Departmental Representative had heavily relied on the decision in the case of Vijay Proteins Ltd. (supra). The Tribunal after considering that decision distinguished the aforesaid case and deleted the entire addition made on account of alleged bogus parties. In that case also the addition was made by the AO on the ground that there were suspicious features like the sellers having their bank accounts in the same branch, sales-tax registration numbers of those sellers were cancelled, the amount paid by the assessee to the suppliers towards the payment of purchase price of goods was immediately withdrawn subsequently by way of self bearer cheque on the very day of depositing. The Tribunal had, inter alia, observed that the fact that these people had operated the bank accounts from the same bank and the amounts credited to their accounts were promptly withdrawn, may give rise to some suspicion but there was no evidence to show that the assessee had not made any purchases from them. At best, it could be inferred that these parties were set up by somebody else and the reasons could be manifold for that. But to say that no purchases were made at all or were made at an inflated price would be without any justification. The Tribunal deleted the entire addition. The Hon'ble High Court observed that the Tribunal appreciated all these facts in arriving at the conclusion in favour of the assessee. The matter is, therefore, in the realm of appreciation of evidence and no interference is called for. The Hon'ble Supreme Court while dismissing the SLP filed by the Department observed that the officers could have made further inquiries from the bank as to who actually encashed the bearer cheques and in the absence of such complete inquiries, the addition could not be sustained. It may be relevant here to mention that the assessee in this case had given full address of the so-called billing agents M/s Geeta Industries. There is no affidavit or statement of the suppliers stating that they have not made any supplies to the assessee. Furthermore the transactions of purchases by Adinath Industries from M/s Geeta Industries (billing agent) were made through Dalals. The brokers duly confirmed the genuineness of the transactions. The address of the suppliers given by the assessee were not found to be incorrect. It is not a case, where the suppliers were not found at the given address. In the present case the suppliers have given their statements/affidavits to Dy. DIT clearly stating that they have not supplied any material to the assessee as shown in the bills issued by their concerns. They have also admitted that they were only name-lenders. The brokers Shri Rajesh and Shri Lalchandbhai have also stated that these suppliers have not supplied any material to the assessee through them. The assessee is not prepared to produce those suppliers along with their records, although a specific opportunity for this purpose was granted by the Tribunal.

In this case, the assessee purchased material of Rs. 52,254 from certain parties. Those parties had admitted before the sales-tax authorities that they had issued bogus vouchers. The AO added the said amount. The Tribunal found that there was no evidence to show that the bogus vouchers had been issued by the said parties to the assessee. It has been further observed that nothing has been shown to indicate that any part of the funds given by the assessee to these parties came back to the assessee in any form and that the assessee had made its payments by cheques. The Tribunal deleted the addition. The Hon'ble High Court confirmed this decision. In this case also there was no specific denial by the suppliers in relation to specific bills issued by them to the assessee. There was a general admission made before the sales-tax authorities without specific mention of any fact that bogus vouchers had been issued to the assessee, However, in the present case all these suppliers have specifically denied having supplied any material to the assessee vide their statements/affidavits given in the year 1999 to the Dy.

DIT. (C) ITA No. 4631/Ahd/1990 with CO No. 1/A/1993 for asst. yr. 1985-86 in the case of ITO v. Ghanshyam Steel Traders, Baroda, dt. 15th Feb., 1996 : In this case also the addition of Rs. 1,14,500 made on account of alleged bogus purchases from one M/s Nilu Steel Traders, Baroda was deleted by the CIT(A) which has been approved by the Tribunal. The facts of this case are also distinguishable. It has been observed in the aforesaid decision that M/s Nilu Steel Traders were engaged in the trading business of iron and steel goods for last several years.

Shri H.M. Patel, proprietor of Nilu Steel Traders had given an adverse statement only with a view to implicate the assessee for reasons best known to him. He also refused to produce before the AO at the time of cross-examination, the copies of sales-tax returns submitted in respect of Nilu Steel Traders. He denied having received any payment but it wag found that the payment of aforesaid sales was made by account payee cheques. The material was really received by the assessee and was supported by those items found in the inventory of stocks as well as by the sales of those very items made in subsequent years. In view of these material on record, the Tribunal confirmed the order of the CIT(A). The facts of the present case are clearly distinguishable with the facts of that case.

In this case the assessee made total purchases from different concerns worth Rs. 6,76,038 and against those purchases, sales were effected at Rs. 9,36,679 with a resultant GP rate of 25 per cent which was considered fair and reasonable and, therefore, there was no need of further addition. The Tribunal held that the payments were made by account payee cheques and they were certainly deposited in some bank accounts which were opened, maintained and operated by suppliers or by some other persons and the amount was credited in those accounts. Who were the persons who operated the accounts, who introduced them to the bank, who deposited these account payee cheques and who was withdrawing and enjoying the money and whether these payments had reverted back to the originator, could very easily be known to the Department. No inquiries were made from sales-tax department as to whether those sales-tax registration numbers were allotted to non-existent persons or existing ones and whether the sales-tax was collected and deposited into the Government exchequer or not, and if yes, by whom. Such an inquiry should have been made by the Department in order to know the truth.

Failure to do so on the part of the AO, cannot authorise him to treat the purchases as bogus without proper inquiries. The facts of the present case are clearly distinguishable.

(E) ITA Nos. 2609/Ahd/1984 and 2894/Ahd/1988 for asst. yr. 1985-86 in the case of Arun Industries, Dhoraji, dt 31st Jan., 1992: In this case also the parties from whom the purchases were made were not traceable. The AO disallowed 25 per cent of purchases of Rs. 32,56,326 made from those four parties. The purchases were made through two brokers, viz. Ukalal M. Patel and Vadilal Popatlal and Sons. These brokers had appeared before the AO and also averred that they had arranged the impugned transactions between the assessee and the four purchasers who were regarded by the AO as sham. On these facts the Tribunal deleted the said addition. The Hon'ble High Court confirmed the said order. SLP submitted by the Department has been dismissed by the Hon'ble Supreme Court as reported in (1994) 207 ITR (St) 90. The facts of this case are also not similar. In the present case, the brokers have clearly denied this fact in their respective statements. The suppliers have given their respective affidavits/statements to Dy. DIT denying such transactions. The burden lies on the assessee to support the subsequent retraction made through affidavits by producing the suppliers and brokers along with their records, which was not done.(F) Milk Food (P) Ltd. v. Dy. CIT In this case the addition of Rs. 7,50,000 was sustained out of total purchases of Rs. 52,54,635 made from one "B". According to the assessee, "B" arranged the purchases of rice husk from various parties in the capacity of an agent but there were no details available about the commission paid to "B" by the assessee-company or commission received from various parties who supplied rice husk to the assessee-company. The assessee-company did receive delivery of rice husk and the payment made through cheques to "B" was not received back in any form. The Tribunal, Delhi Bench, held that the parties willing to sell goods without billing normally charge lower rate. The assessee-company, thus, as per the modus operandi adopted, had inflated the purchase rate by bringing in "B" as an intermediatry and such inflation in purchase rate could be in the range of about 15 per cent and at this rate the inflation in purchase of rice husk would work out to Rs. 7,88,000. Considering all these facts, the addition of Rs. 7,50,000 was sustained. This decision does not support the assessee's claim for deduction of entire purchase price. The estimate of income on account of inflation of purchase price is bound to vary from case to case depending on nature of business and the fact whether it was shown as credit purchases or cash purchases.

(G) Asstt. CIT v. Rehmat Khan Chandan Khan & Party (1995) 52 TTJ (Jp) 203 : This was a case where lump sum addition made on account of low GP was held to be not justified. This case is not of any relevance to the point in issue.(H) ITO v. Chandrakant Manilal Shah, Tribunal, Ahmedabad Bench Copy has been submitted along with the compilation dt. 1st July, 2002. In this case, the suppliers initially denied. Later on they admitted. The supplier was dealer in colour and chemicals for last four years and was duly assessed to income-tax and sales-tax. The facts are clearly distinguishable, as the suppliers in the present case are not existing I.T. assessees and there is no evidence about their capacity to supply such material worth lakhs/crores on credit.

The suppliers have not been produced.

35. The learned counsel placed reliance on the following decisions to support his contention that the statements recorded without knowledge of the assessee have no evidentiary value. These judgments were also relied upon to support his contention that the contents of affidavits of suppliers submitted by the assessee during binding: 36. The learned counsel also placed reliance on the following judgments to support his contention that the transactions of purchases made from these parties which were duly recorded in the regular books of accounts in normal course, are outside the ambit of block assessment: (ii) Elecon Finlease & Industries Ltd. v. CIT (2000) 66 TTJ (Ahd) 551Caltradeco Steel Sales (P) Ltd. v. Dy. CIT (2000) 243 ITR 643 (Cal) 37. The learned counsel submitted that the Addl. DIT conducted inquiries after completion of the search under Section 131(1A). This is not permissible. The CIT(A) has erred in relying upon the judgment of the Hon'ble Gujarat High Court in the case of Aarti Gases v. Director of IT (Inv.) (2001) 248 ITR 55 (Guj) while rejecting this contention.

The plain language of Section 131(1A) provides that inquiry has to be conducted before the commencement of search and not after the conclusion of the search. So long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold legislative intent is impermissible. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of CIT v. Plantation Corporation of Kerala (2001) 247 ITR 155 (SC) and the judgment in the case of Andhra Pradesh Chambers v. State of AP and Ors. (2001) 247 ITR 36 (SC). The assessee also placed reliance on the decision of the Tribunal, Madras Bench in the case of Kirtilal Kalidas & Co. v. Dy. CIT (1999) 64 TTJ (Mad) 77 : (1998) 67 ITD 573 (Mad) to support his contention that an assessment based on appraisal report is bad in law.

38. The learned counsel has relied upon the following further decisions where the additions made on account of bogus purchases have either been deleted or in some cases, some additions have been sustained on the basis of comparative position of gross profit declared in various years: (i) J.H. Metals v. ITO (2001) 71 TTJ (Asr) (TM) 683 : (2001) 77 ITD 71 (Asr) (TM)J.R. Solvent Industries v. Asstt. CIT (1999) 63 TTJ (Chd) (TM) 165 : (1999) 68 ITD 65 (Chd) (TM)Dy. CIT v. Brahmaputra Steels (P) Ltd. 39. Our attention was also invited to GP chart submitted along with the supplementary notes given on 22nd Oct., 2002 which is reproduced below:Asst yr.

GP Yield 40. It was contended that both the GP rate as well as yield disclosed by the assessee in asst. yrs. 1998-99 and 1999-2000 are better as compared to earlier years. Reliance was also placed on the decision of the Tribunal in the case of Asstt. CIT v. Hynoup Food & Oil Industries (P) Ltd. (1999) 63 TTJ (And) 111 where the shortage of 0.18 per cent in similar line of manufacturing activities was accepted by the Tribunal.

The learned counsel also placed reliance on the following judgments:State of Kerala v. C. Velukutty 41. The learned counsel also once again stated that the facts relating to Vijay Proteins Ltd. where disallowance of 25 per cent of bogus purchases was sustained by the Tribunal, are not applicable to the case of the assessee, as there was a difference between the purchase price of unaccounted material and accounted material on account of saving of sales-tax, other taxes, and duties leviable in respect of manufacture and sale of goods in question. The said factors are not present in the case of the assessee inasmuch as the purchase price from alleged non-genuine suppliers has been made at the prevailing market rate as confirmed by the AO in remand report dt. 26th Dec., 2001.

42. The learned counsel also once again placed heavy reliance on the judgments of the Hon'ble Gujarat High Court in the cases of Adinath Industries and Arun Industries where SLP filed by the Department had also been dismissed. It was contended that the facts of the present case are similar. The judgment of the jurisdictional High Court is binding. Reliance is placed on the judgment in the case of Sayaji Iron & Engg. Co. v. CIT (2002) 253 ITR 749 (Guj) and Agrawal Warehousing & Leasing Ltd. v. CIT (2002) 257 ITR 235 (MP).

43. The learned counsel thus strongly urged that the addition of Rs. 11.99 crores should be deleted.

44. The learned senior Departmental Representative vehemently supported the order of the CIT(A). Elaborate arguments were made by him on various dates of hearing. Thereafter Shri V.K. Gupta, senior Departmental Representative, has submitted detailed written submissions. It may be imperative to reproduce those written submissions which adequately cover all the oral submissions made by him on various dates of hearing: "During the course of appellate proceedings in this case, the learned Representative of the assessee have raised several issues and contentions regarding first ground of appeal.

2. The Authorised Representative of the assessee has stated that enquiries have been conducted at the back of the assessee. However, this is not the true fact.

It is the assessee who refused to attend before the Dy. DIT (Inv.) Unit-III(1), Ahmedabad and has stated in his letter dt. 20th April, 1999 that the company has taken stand that the notice under Section 131(1A) is ill conceived and has requested not to press for any more statement, Extract of this letter is on page No. 4 of the paper book submitted by the undersigned on 21st Oct., 2002. In view of the assessee's refusal and non-co-operation, the Dy. DIT carried out his enquiry in this case on seized material, incriminating documents, statements of various persons and leads coming out of bank enquiries and other enquiries.

2.1 The Dy. DIT was perfectly legal in carrying out such enquiries and the Hon'ble Gujarat High Court has held in the case of Aarti Gases v. Dy. DIT (supra) that notice under Section 131(1A) after the completion of search under Section 132 can be issued for proper appreciation of the facts and issues resulting from search and same is also beneficial to the assessee to explain his stand on these documents. In the case of Classic Builder & Developers v. Union of India (2001) 251 ITR 492 (MP), the Hon'ble High Court has decided that the Dy. DIT was perfectly within his power in issuing the commission under Section 131(b)(D) with the view to elucidate the correctness of cost of construction by having power under Section 131(1A). They also clarified that power under Section 131(1A) has been taken to the six authorities in this section and the wording........ before taking action under........ is for the authorised officer, i.e. the sixth authority mentioned in that section.

2.2 It was alleged that the Dy. DIT has directed the AO for carrying out the assessment on dotted lines as per the direction given by him in appraisal report is also not correct, The AO and Dy. DIT are of same rank and Dy. DIT does not have any power to issue any such direction to the AO and it is settled position of law that the AO is not obliged to accept any direction which are not as per law and IT Act, 1961. I am enclosing herewith extracts where in the appraisal report the Dy. DIT has written his concluding remark where he has made very clear that these observations in the appraisal report are for guidance only and represents only salient features observed during the course of search and are merely in the nature of guidance. He has drawn the attention of the AO to the Board's Instruction No. 1621 issued from F No. 286/112/85-IT (Inv. II) dt.

4th June, 1987. The copy of these reports are enclosed in the paper book filed on 21st Oct., 2002 at page Nos. 5, 6 and instruction is enclosed at page Nos. 7, 8 and 9.

2.3 The assessee should not have grievance regarding which limb of the Department carries out enquiries in his case if the same is done lawfully. What the assessee can acquire is that when sufficient opportunity was given by the AO before making any addition in his case on the basis of incriminating documents, statements and the enquiries conducted during the course of search and after the search, before completing the assessment. In this case, the assessee was given a detailed list of all the enquiries conducted by the Department and his explanation was called for on these enquiries as early as on 4th Dec., 2000 and the present case was getting time-barred only in the month of April, 2002. However, assessee chose not to cross-examine any of the bogus party or other witnesses and only raised technical ground stating that the income cannot be assessed in block assessment. Copies of reply of the assessee dt.

26th Deg., 2000 are enclosed in the paper book of the Department filed on 21st Oct., 2002 from page Nos. 10 to 13.

3. In the case of the assessee group, searches were conducted at the residence, factory premises, office premises and surveys under Section 133A were carried out on 24th Feb., 1999 and subsequently on N. K. Group. During the course of search, assets as mentioned on p.

1 of paper book filed on 21st Oct., 2002 of the Department were seized.

3.1 During the search, certain blank bills, letter head, delivery challan and blank cheque books of various parties were found. Blank bills of transporters were also found. Xeroxes of cheques found in the case of M/s Adinath Corporation has been given as first paper book containing 8 pages. Xeroxes of blank cheques found have been given on page Nos. 36 to 83 of paper book filed on 22nd Oct., 2002 of Department. Copies of blank letter heads and bills seized as per Annex. A-7 are as per page Nos. 14 to 28 of the paper book dt. 21st Oct., 2002.

3.2 During the course of search proceedings, it was found that the assessee has used names of following concerns for inflating the purchases (i) M/s Adinath Corporation, (ii) M/s Tirupati Corporation, (iii) M/s Krishna Industries, (iv) M/s Vimal Industries, and (v) M/s Karnavati Industries. Detailed enquiries were carried out in the case of M/s Adinath Corporation whose proprietor was Shri Jaysukhlal Doshi and as per the details given on page Nos. 6, 7 and 8 of assessment order it was held that M/s Adinath Corporation was fictitious entity and was controlled and operated by Shri Nilesh K. Patel, who is the director of the assessee-company handling the day-to-day affair of the assessee-company. The address given by M/s Adinath Corporation to the bank was fictitious. It may be noted that during the course of proceedings, electricity bills, ration card were also obtained from the sales-tax authorities from which it was clear that assessee was a resident at Ahmedabad at the address given on page No. 6 of the assessment order. A copy of ration card and electricity bill are enclosed on page Nos. 91 to 93 of the paper book filed on 21st Oct., 2002. Shri Jaysukhlal Doshi is proprietor of M/s Adinath Corporation and Tirupati Corporation and Shri Jaysukhlal Doshi has filed an affidavit before the IT Department stating that no transactions were carried out by him with M/s N. K. Proteins Ltd. Copy of affidavit of Shri Jaysukhlal Doshi is enclosed on page No. 5 of paper book dt.

22nd Oct., 2002.

3.3 Signature of Shri Jaysukhlal Doshi on sales bills and those on blank cheques are not same. It appears that sales bills have been signed by somebody other than Shri Doshi. Sample copy of sales bills of M/s Adinath Corporation and M/s Tirupati Corporation have been filed by the Authorised Representative of the assessee on page No. 139 and 142 of its paper book dt. 1st July, 2002.

3.4 It may be seen from the bank a/c which is on page No. 63 of assessee's paper book mentioned above that cash has been withdrawn on same date as and when cheques are deposited in the bank account.

Cheques bearing Nos. 74301 to 74341 have been used for withdrawal of cash as is apparent from the above bank a/c statement and the Department has seized signed blank cheques of above concerns from 74342 to 74345 which shows the control over cheque books of M/s Adinath Corporation.

3.5 It can further be seen from the bills that these bills does not contain any telephone number and the address given on these bills of Rajasthan proves to be bogus as assessee was having permanent residence at Ahmedabad itself and assessee has claimed in this regard that cheques were lying with him for business convenience does not hold water as transaction with M/s Adinath Corporation ended in the month of July, 1998 and search was conducted in the month of February, 1999 and which is more than 8 months from the last transaction and there is no reason for keeping blank signed cheque book, blank bills, letter heads, vouchers etc.

3.6 The assessee has shown purchase of Rs. 2.16 crores from M/s Adinath Corporation. However, bank a/c shows deposits of Rs. 2,10,49,035 which means cheques were deposited somewhere else also, It has been found that payment for first three transactions which are mentioned in the copy of a/c on page No. 37 of Department's paper book dt. 21st Oct., 2002 have been made in the account of M/s Tirupati Corporation as mentioned in page No. 60 and 61 of Department's paper book of 21st Oct., 2002. Similarly cheque of Rs. 3,79,967 deposited in the account of M/s Adinath Corporation shown on page No. 59 of paper book has been found debited in the account of M/s Krishna Industries which is shown on p. 50 of the paper book.

These transactions clearly shows that all these bank a/cs, cheques were in complete control of assessee-company.

3.7 It is clear from the above that the assessee-company was in complete control and they themselves have created these bogus entities for inflating the purchases.

3.8 The assessee-company has submitted an affidavit of the proprietor of M/s Adinath Corporation and M/s Tirupati Corporation on 20th April, 2001 (page No. 29 of paper book dt. 21st Oct., 2002) which was Friday and which leaves with Department only 5 days time as there were total 5 holidays between 20th April, 2001 and time barring date 30th April, 2001, being 2 Saturdays, 2 Sundays and one holiday on account of Mahavir Jayanti on 27th April, 2001. Issuing commission to the counterpart in Maharashtra and getting Shri Doshi cross-examined was not possible.

3.9 Shri Nilesh K. Patel in his statement during the course of search has stated that transaction with the above bogus parties were carried out through broker Shri Rajesh Mehta and Shri Lalsingh, A Rajput. Shri Rajesh Mehta and Shri Lalsingh were summoned and their statements were recorded and both of them have denied about any transaction with assessee-company and they also denied that they don't know all the abovementioned five companies. Their statement is part of assessment order itself.

3.10 Similar investigations were carried out in the case of other bogus parties and which are discussed by the AO in his order from page No. 11 to 27 of the assessment order. The enquiries were carried out with the sales-tax department, with the bank and on the address given by these bogus parties and it was clearly held that the address given by all these parties were bogus. These concerns were controlled and operated by Shri Nilesh K. Patel who is the director of the assessee-company and handling the day-to-day affair of the assessee-company. The assessee-company has inflated its purchase by showing bogus purchases for these concerns and money deposited in these accounts were withdrawn by the assessee-company by means of blank signed cheques, which were found during the course of search. It is clear that all these parties are not capable of such large scale transaction. It may be mentioned here that one oil tanker of 12000 litre of wash cotton seed oil is of about Rs. 3 to 4 lakhs, wash cotton seed oil is not a commodity which is available in open market and it has to be purchased from oil miller/expeller and whereabouts of these oil millers are known to the assessee-company as most of the time its transport were used and if these were genuine transaction, the assessee could have purchased directly from them or through broker. All these parties does not have storage capacity to store such a. huge quantity of oil on their own. It is worthwhile to mention here that M/s Tirupati Corporation has sold 19 trucks of oil worth more than Rs. 1 crore on a single day, i.e., on 29th Dec., 1997 and again have sold 9 trucks of oil on 16th Nov., 1997.

3.11 Yield of cotton seed oil is about 10 to 12 per cent which means approximately 1 lakh kg. of cotton seed is required to produce one tanker of oil, i.e., 10000 litre of oil which means oil miller/expeller should have capacity to crush such a large quantity of cotton seed and capacity to store cotton seed and tanks to store cotton seed oil and it is worthwhile to mention here that M/s Tirupati Corporation has supplied 19 tankers oil on one day i.e.

19th Dec., 1997.

3.12 All entries of these stocks from the above bogus parties are appearing in the inward register. However, these are mere entries and no actual goods have been received as all these registers were made by the assessee and was part of the design for inflating the expenses. This fact further gets support if details entered in inward registers are seen. Inward register A-1/15 seized from the assessee's premises of which page No. 7, 8 and 51 are enclosed as page Nos. 1, 2, 3 and 4 of Department's paper book dt. 22nd Oct., 2002 where it can be seen that 9 trucks shown as per inward No. 2311 to 2319 have been shown to be received on 16th Nov., 1997 from M/s Tirupati Corporation have emptied the oil within one hour 15 minutes as per inward and outward time. Your Honour will appreciate that as explained by the assessee himself that whenever any oil tanker comes first it has to be weighed for the gross weight and then sample is to be taken from the tanker for the purpose of checking the quality, colour and odour and then only after lab report it has to be emptied in the assessee's tank. Where in case of other persons who are mentioned on this page and next page this whole process has taken a time of more than 4 to 5 hours in the case of M/s Tirupati Corporation, this work as per this record was over in one hour 15 minutes which is not physically and practically possible. Similarly, on p. 3 of the paper book, 19 trucks have been stated to be received from M/s Tirupati Corporation on 21st Dec., 1997 for which no inward time, no outward time and no counter-signature of security staff or counter-checking staff have been made and all the entries are empty in the inward register. These facts clearly establish that all these contemporary records are in fact concocted and not reliable. At this point, I will further like to draw your attention regarding the seized material A-6 where bunch containing 234 documents were seized, which are bills and delivery challans of purchases of wash cotton seed oil from N.K. Industries on which inward number, inward date and truck's No. is also written for which assessee has taken a stand during the course of assessment proceedings that these are cancelled bills and no material has been received on these bills and also the bills prepared of sales in anticipation of these purchases to M/s Triveni Corporation and M/s Tirupati Corporation are not the actual transaction. In the register A-1/15 as mentioned above, these bills are entered in the name of M/s Kothari Global Ltd. and same inward number for same weight of the quantity mentioned which clearly shows that assessee is creating documents as per his will and need and has nothing to do with the actual happening in the company. This fact gets further support from the following analysis of these seized material (A-6) itself. Assessee has stated that these purchase bills of value of about Rs. 2 crores were sold to M/s Triveni Corporation and M/s Tirupati Corporation (which the later denied and stated that these all bills were cancelled) is also not correct. All the purchase bills from N.K. Industries Ltd. are for the item wash cotton seed oil and all the sales bills to M/s Triveni Corporation and M/s Tirupati Corporation are for soyabean oil. How the person can sell soyabean oil out of purchase of wash cotton seed oil. Thirty pages from the seized documents A-6 have been enclosed as page No. 6 to 35 of Department's paper book dt. 22nd Oct., 2002 (total documents in the seized files are 234). It has to be further emphasised here that all these transactions are spread over a period of more than a month and all these transactions carry lorry No., signature of accountant, signature of checking staff and details of inward No. and date. It can further be seen that even these entries which have been made in the name of M/s Kothari Global Ltd. in the inward register are not correct. To illustrate this truck No. GJ-2U-9013 has come (highlighted in yellow colour of the papers enclosed) on 17th Dec., 1997 to the assessee's premises at 12.50 hours from Mumbai and has gone out at 15.35 hours on same day. This truck has again come back from Mumbai vide inward No. 2792 on 17th Dec., 1997 itself at 19.55, hours, i.e., within 4 hours 20 minutes which is physically impossible. How a truck can cover a distance of 550 km of Khadi to Mumbai and again back from Mumbai to Khadi in such a short time. Considering the fact it has to be filled up with the wash cotton seed oil also. This truck has again left the assessee's premises at 22 hours on 17th Dec., 1997 and has again come back vide entry No. 2803 on 18th Dec., 1997 at 13 hours, i.e., again in time less than 15 hours. A journey to Mumbai if considered that a truck and a truck driver had continuously worked then it will take not less than 12 hours for a single trip from Khadi to Mumbai.

Similar analysis for other trucks have also been given and highlighted in green and blue colour which clearly shows that these records are not reliable and assessee has only created facade to conceal his actual working.

4. During the course of assessment proceedings and also before the CIT(A), the assessee has raised the issue of yield stating that if bogus purchases are not taken into account, yield will be more than 100 per cent. The assessee has submitted the details of yield before the CIT(A) at page No. 4 of the paper book of the assessee dt. 1st July, 2002, as per which, yield for financial year 1997-98 will come to 100.21 per cent after excluding the bogus purchases and sales made to M/s Karnavati Industries and Triveni Corporation. In these transactions, the assessee has conveniently not taken into account similar bogus sales made to M/s Tirupati Corporation from the period 1st April, 1997 to 11th May, 1997 which are also reflected on page No. 42 of assessee's paper book where sales of more than Rs. 1 crore has not been considered by the assessee for the purpose of computing the yield. If these bogus sales are also excluded the yield after excluding bogus sales and bogus purchase will come to 99.35 per cent for the financial year 1997-98. The revised working of this yield has been given on page No. 65 of the paper book of the Department dt, 21st Oct., 2002.

4.1 Yield may be more than 100 per cent and depends upon number of factors which are to be considered while arriving at the figure for the yield. (i) Additive use in the process of refining cotton seed oil--Process of refining of cotton seed oil has been explained by Shri Kamlesh L.

Patel in response to question No. 8 on page Nos. 153 to 155 of assessee's paper book. It can be seen that besides various chemicals like soda ash and water has also been used in the process. Use of any of these things may result yield of more than 100 per cent.

(ii) Maintenance of accounts--It has been observed by the special auditors in the case of M/s N.K. Industries Ltd. which is under the same management; that management is accounting weight of the material as per invoice and not as per actual receipt which is invariably higher than the invoice quantity. On page No. 2 and 3 copy of two such reports have been annexed in the paper book of M/s N.K. Industries Ltd. filed by the Department on 21st Oct., 2002.

Excess unaccounted receipt of material may result into excess yield. The special auditors have computed yield of more than 100 per cent in their various reports which are annexed on page Nos. 4, 5, 6 and 7 of the paper book of the Department in the case of N.K. Industries Ltd. which makes it clear that yield can be higher than 100 per cent.

(iii) Edible cotton seed oil of the assessee-company is available in the market and sales is the quantity measured is in litre whereas assessee purchases wash cotton seed oil in kgs. Nowhere in the seized documents or books of accounts of production from kg. into litre is available. It is well known fact that 955 gms. of oil is equal to 1 litre of oil which means if quantities are measured in kgs. and litres there will be increase of 4.5 per cent when quantities are converted from kg. into litre.

5. It has been all along being the Department's case that, since these documents were found from the possession of assessee-company, the presumption under Section 132(4A) is available to the Department and this presumption has not been reverted by the assessee-company by giving cogent evidence in this regard. In this regard, I rely on the following cases where it has been held that onus was on the person who was found in possession of anything.

That all the sections of 110 of the Evidence Act, 1872 did was embody the salutory principle of common law to jurisprudence, viz.

Whereas person was found in possession of anything, the onus of proving that he was not its owner was on that person. This principle could be attracted to a set of circumstances that satisfy its conditions and was applicable to taxation proceedings.

The law of evidence mandates that if the best evidence is not placed before the Court, and adverse inference can be drawn as against the person who sought to have produced it.

That there is a prima fade presumption that those who have been found in possession of certain articles are the owner that of.

However, the presumption can be rebutted by cogent evidence.Pioneer Publicity Corporation v. Dy. CIT (2000) 67 TTJ (Del) 471, Tribunal, Delhi: As per the provisions of Section 132(4) of the Act, diary found at the premises of assessee has to be presumed to be belonging to the assessee, in absence of any valid explanation that it belonged to somebody else. The assessee states that the diary belonged to a Government Officer. However, there was no valid explanation to the identity of such officer and as to why it was found in the premises of the assessee and why officer has not come forward to own the diary. The addition in respect of unexplained entries in the diary was to be sustained in the hands of the assessee.

(v) CIT v. P.R. Metrani HUF (2001) 251 ITR 244 (Kar): Presumption under Section 132(4A) that the articles found in possession or control of person belonged to him is not restricted under Section 132(5) only, Such, presumption is absolute for purpose of Section 132(5) and rebuttable for purposes of other provisions of IT Act.

The assessment based on search and seizure stands on a different footing inference and the seized materials play vital role. There cannot be any direct evidence and no direct evidence would be forthcoming in these matters.P K Narayan v. CIT Where certain documents were discovered during the search showing that the assessee was the owner of the jewellery business run in the name of the third person and the assessee was not able to rebut the presumption arising under Section 132 of the Act, income from jewellery business was assessable in the hands of the assessee.Kerala Liquor Corporation v. CIT The provisions of Section 132(3A) spells out the presumption that the documents belonged to the person from whom they are seized and that their contents are true.

Unexplained gold seized from assessee's premises. Unless the assessee adduces cogent evidence, it would have to be presumed that the articles recovered from the his premises belonged to him.

5.1 Without prejudice to above, it is submitted that if the contention of the assessee is accepted then the assessee should come forward and furnish details of actual suppliers who are in the knowledge of the assessee.State Bank of India and Anr. v. S.K. Sharma AIR 1996 SC 364 where the Court observed "justice means justice between the parties. The interest of justice equally demand that the guilty should be punished and that technicalities and irregularities which do not occasion failure of justice are not allowed to defeat the ends of justice. Principles of natural justice are but the means to achieve the end of justice.

They cannot be perverted to achieve from opposite end".

45. The assessee has submitted rejoinder in reply to submissions dt.

29th Oct., 2002 submitted by the learned Senior Departmental Representative. In the said rejoinder, various earlier arguments made before the CIT(A) and before us have been repeated with greater vehemence. The charge of non-corporation is wrong. Copies of relevant letters were given to show that assessee extended full co-operation.

The AO has not levelled any such charge in assessment order, It has also been pointed out by the appellant that the learned Senior Departmental Representative have dovetailed two concepts of "bogus purchases" and "inflated purchases". Both these concepts are distinct and different. The expression "bogus purchases" would imply that there are no purchases effected at all and mere financial entries are made in the books with a view to reduce the profits. In other words, in case of bogus purchases, no goods are purchased in fact and truth. The expression "inflated purchases" on the other hand, would imply that the purchases which are in fact and truth effected, have been shown at a higher rate than, the market price. The findings given by the AO about the bogus purchases are, therefore, completely vitiated. Reliance has been placed on the judgment of the Hon'ble Supreme Court in the case of Omar Salay Mohamed Sait v. CIT (1959) 37 ITR 151 (SC) to support their contention that the conclusions reached by the Tribunal should not be coloured by any irrelevant considerations. It has been reiterated that the AO in the remand report has accepted that the material purchased from these parties was in fact received and properly accounted for in inward register, stocks registers and financial books of accounts. He has also confirmed that such purchases have been made at market rate.

The margin of GP and yield is better as compared to the past. All these facts indicate that it is not a case of either bogus purchases or inflated purchases. The assessee has also stated that the AO has erred in stating that the yield may be more than 100 per cent in some cases because soda ash and water are used in the process of production. This is factually incorrect. Soda ash and water is never used in manufacturing process carried out by the assessee. No purchases of soda ash has been established. The AO has confused the production activities of NKIL which manufactures castor seeds oil. It has been submitted that presumptions contained in Section 132(4A) do not override the other provisions of the Act. Reliance has been placed on the judgment in the case of Pushkar Narain Saraff v. CIT (1990) 183 ITR 388 (All) and Brijlal Rupchand v. ITO (1991) 40 TTJ (Ind) 668. It has once again been repeated that Dy. DIT has no power to make enquiries after completion of the search. The decisions relied upon by the learned Senior Departmental Representative according to the assessee, are distinguishable. The assessee in the said rejoinder has further stated that only one bank account of Adinath Corporation was introduced by Shri Nileshbhai K. Patel while the other bank accounts of other four suppliers were introduced by third parties and not by any person or concern of assessee group. It has been stated in para 4.2 of the said rejoinder that the Department obtained certain cheques from the banks as per paper book dt. 21st Oct., 2002. Such cheques are being produced before the Tribunal for the first time, which is not permissible. It may also be seen that on reverse of those cheques, there is a signature of the person who has given the cheque. There is no signature of Shri Nilesh K. Patel on reverse of the cheque or anywhere meaning thereby the money has not come back to him. Nothing has been shown to indicate that any part of the funds given by the assessee to these parties came back to the assessee in any form. It has been further stated that the signature of Shri J.J. Doshi on affidavit dt. 12th April, 2001 tallies with the blank cheques signed by him which have been furnished by the AO in the Departmental paper book. The bills may be signed by the clerk. Therefore the signature of Shri J.J. Doshi on the affidavit cannot be validly doubted, as erroneously presumed by the AO. As regards the withdrawal of cash from the accounts of those suppliers and equivalent amounts of cheques deposited in their accounts, the assessee has once again drawn our attention to the decision of the Hon'ble Gujarat High Court in CIT v. M.K. Brothers (1987) 163 ITR 249 (Guj) wherein it was observed that the supplier has withdrawn the said amount and might have given the same to the person from whom he made purchases. The assessee has also pointed out that the transactions with Adinath Corporation ended in the month of July, 1998. The account was closed in July, 1998. Some bills/cheques were found during the course of search on 24th Feb., 1999. This shows that those cheques could not have been used when the account had already been closed in July, 1998.

In para 9 of the rejoinder, the assessee has stated that these suppliers were traders. They were carrying on business not only with the appellant but with outsiders also. The total deposits in bank accounts of these suppliers upto April, 1999 were about Rs. 44 crores as against purchases of only Rs. 11,99 crores which were made by the assessee from them. This shows that the large scale dealings were made by these traders with outside other parties also. The allegation that the appellant was in complete control of the suppliers is without any cogent material. The suppliers have filed their affidavits at the time of assessments stating that they were independent and not controlled by Shri Nilesh K. Patel. In the absence of examination by the AO at the time of assessments, no adverse conclusion can be drawn against the assessee. Reliance is placed on the judgment of the Hon'ble Gujarat High Court in the case of Glass Lines Equipments Co. Ltd. v. CIT (supra). As regards the delay in submission of affidavits of the suppliers, it has been stated that the assessee submitted the affidavits on 23rd Feb., 2001 and only one affidavit of M/s Adinath Corporation was submitted on 20th April, 2001. It is contended that lack of time is no excuse. Reliance is placed on the judgment of the Hon'ble Allahabad High Court in the case of J.K. Synthetics Ltd v. ITO (1976) 105 ITR 864 (All) in this regard. The assessee in para 11 has stated that Shri Rajesh broker and Shri Lalchand broker were examined behind the back of the assessee. They have denied having any transactions with the appellant. Shri Nilesh K. Patel in his statement on 6th April, 1999 stated that the transactions with these parties were carried out with the help of these two brokers. In the absence of any examination of these two persons during the course of assessment proceedings, the AO could not validly draw any adverse inference against the assessee. In para 12, it has been submitted that these parties are only traders. They supply cotton seed oil from the oil millers to the appellant directly and, therefore, there is no need for any storage facilities. The AO has overlooked the fact that this is a case of constructive delivery where the traders have directed the oil millers to supply the wash oil directly to the assessee. Reliance was placed on the decision of Tribunal in the case of SRF Ltd. v. Dy. CIT (2002) 74 TTJ (Del) 648. It was also pointed out that the appellant has big unloading station and that 10 to 12 tankers are unloaded simultaneously. There are also instances, where, the third party have unloaded within short time. Therefore, this observation of the learned Senior Departmental Representative is of no significance. As regards the actual receipt of material purchased from these parties, the assessee has once again invited our attention to letter dt. 14th March, 2001 and 27th April, 2001 addressed to the AO regarding stock found during the search and which is reconciled with the books of account and inventory prepared by the AO at the time of search. The AO has accepted the same inasmuch as no addition is made on this account. Further it was stated that the stock registers are subject to verification by Civil Supplies Department from time to time.

46. In para 13.1 the observations made with regard to supplies made by Kothari Global has been challenged. It has been stated that Kothari Global has supplied from some trader or manufacturer nearby Ahmedabad.

The supply was in December, 1997. Old records are not available.

Further such evidence is being produced for the first time before the Tribunal. Therefore it cannot be entertained. The assessee has contended in para 16 that he AO has taken a contradictory stand in the said written submissions as compared to the stand taken by him in the remand report. The same AO has stated in the remand report that the raw material has been received by the assessee and in the same breath he treated the payments made towards these purchases is unaccounted income which would mean that the suppliers supplied the goods without charging any price. Even assuming that the suppliers were kind enough to supply the goods free of cost, even then market price of goods so received has to be allowed as a deduction. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of CIT v. Groz-Beckert Saboo Ltd. (1979) 116 ITR 125 (SC).

47. Before giving our findings in relation to the main ground, it may also be relevant here to briefly state the arguments advanced by the learned representatives of both sides in relation to other grounds in which certain legal contentions have been raised with regard to block assessment made by the AO. In Ground No. 1, the assessee has contended that the block assessment is void ab initio since the notice issued under Section 158BC does not mention the status of the assessee and does not mention correct block period. A copy of notice under Section 158BC dt. 25th Oct., 1999 addressed to NKPL has been submitted at p.

171 of the compilation. There is no mistake in the mention of name of the assessee which is clearly mentioned as "N.K. Proteins Ltd.". The use of word "limited" clearly indicates the status of the assessee. A limited company cannot have the status of 'individual, HUF, 'firm', 'AOP' and 'BOI'. It has to be assessed in the status of "company". The period for which the return is required to be filed is also clear from the expression of "assessable for the block period mentioned in Section 158B(a) of the IT Act, 1961". The date of search is known to the assessee. The block period can be easily understood by reference to Section 158B(a) of the Act. There is no ambiguity in the said notice.

The assessee has correctly understood the contents of the said notice and accordingly filed the return in the correct status for the appropriate period in question. The assessee relied upon the decisions reported in Monga Metals (P) Ltd. v. Asstt. CIT (2000) 67 TTJ 247 (All), Verma Roadways v. Asstt. CIT (2001) 70 TTJ (All) 728 : (2001) 75 YTD 183 (AS), P.N. Sasikumar and Ors. v. CIT (1988) 170 ITR 80 (Ker), Madanlal Agarwal v. CIT (1983) 144 ITR 745 (All) and CIT v. Govind Kumar (2001) 119 Taxman 110 (Raj). A31 these cases are not applicable to the facts of the present case as no defect is found in the notice issued by the AO. The assessee has rightly understood the contents of the said notice and has made perfect compliance by filing the return pursuant to such notice. The learned CIT(A) in para 5.3 of his order has observed that the basic condition precedent for assessment under Chapter VI-A is execution of a search warrant under Section 132(1).

This condition is satisfied. The conduct of the appellant also indicates that it was, aware about the precise requirements of notice under Section 158BC. It accordingly filed the return in respect of "N.K. Proteins Ltd.". The point raised by the assessee is purely a technical one and even assuming there is some infirmity in the notice, it is curable under Section 292B. Reliance was placed on the decision reported in Dr. R.M.L. Mehrotra v. Asstt. CIT (1999) 64 TTJ (All) 259 : (1999) 68 ITD 288 (All). The learned CIT(A) rejected the said ground.

In our view, the CIT(A) has rightly rejected this ground raised by the assessee.

48. In ground Nos. 5.1 and 5.2, it has been contended that the approval of Jt. CIT granted under Section 158BG without providing any opportunity to the assessee is invalid and the approval so granted by the Jt. CIT appears to be mechanical and without application of mind.

The learned counsel contended that the approval was granted on 30th April, 2001 and on that very day, the assessment order has been passed by the AO. The approval granted in mechanical manner without grant of opportunity of hearing, is invalid. Reliance has been placed on the decisions reported in Chhugamal Rajpal v. S.P. Chaliha and Ors. (1971) 79 ITR 603 (SC) and 197 ITR 194 (sic). The CIT(A) has negatived this plea by placing reliance on the decision reported in 78 TTJ 728 (sic) in para 11.2 of his order. The view so taken by the CIT(A) is fully supported by the decision of the Tribunal Special Bench in the case of Kailash Modgil v. Dy. CIT (2000) 67 TTJ (Del) 145 : (2000) 72 ITD 97 (Del)(SB) (2001) 248 ITR 59 (AT) (Del)(SB). We, therefore, respectfully following the order of the Tribunal, Special Bench, confirm the view taken by the CIT(A) in relation to this ground also.

49. We will now deal with the main ground raised by the assessee in relation to addition of Rs. 11.99 crores made in respect of bogus purchases. We have carefully considered the elaborate arguments made by the learned representatives of both sides. We have also carefully gone through the orders of the learned Departmental authorities as well as all other documents submitted in the various paper books submitted by the learned representatives of both sides, to which our attention was drawn during the course of hearing. We have also carefully gone through all the judgments cited by the learned representatives.

50. One of the main arguments advanced on behalf of the assessee was that the purchases made from five suppliers in question were duly recorded in the regular books of accounts in the normal course. The IT return for asst. yr. 1998-99 had been submitted on 30th Nov., 1998 i.e.

before the date of search on 24th Feb., 1999 on the basis of such regular books of accounts which include all the transactions of purchases made from them. Likewise the transactions of purchases made from these parties were recorded in the regular books of accounts till the date of search in the normal manner. Therefore, the question relating to addition in respect of purchases made from these suppliers does not come within the ambit of block assessment. Heavy reliance was placed on the judgment of the Hon'ble Gujarat High Court in the case of CIT v. N.R. Paper & Boards Ltd. (supra) and other such decisions.

51. Before we go through the ratio of judgment of the Hon'ble Gujarat High Court in the case of NR Paper & Boards Ltd. (supra), it would be relevant here to refer to the decision of the Hon'ble Supreme Court in the case of CIT v. Sun Engineering Works (P) Ltd. (1992) 198 ITR 297 (SC). The Hon'ble Supreme Court has observed as under at p. 320 of 198 ITR; "Such an interpretation would be reading that judgment totally out of context in which the questions arose for decision in that case.

It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete "law" declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the Courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings. In Madhav Rao Jivaji Rao Scindia Bahadur v. Union of India (1971) 3 SCR 9 : AIR 1971 SC 530, this Court cautioned (at p.

578 of AIR 1971 SC): 'It is not proper to regard a word, a clause or a sentence occurring in a judgment of the Supreme Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment'." 52. A useful reference may be made to the judgment of the Hon'ble Gujarat High Court in the case of Gujarat State Co-operative Bank Ltd. v. CIT (2001) 250 ITR 229 (Guj). At p. 265, the Hon'ble High Court has observed as under: "As per the settled legal position, a decision is an authority for what it actually decides and not necessarily for what logically follows from it. Equally well settled is the principle that a decision to be law under Article 141 must not be a mere conclusion by which the case is disposed of. Because, a conclusion, a mere conclusion, may be on facts, it may not and does not necessarily involve consideration of law. It is well settled that An. 141 will not be attracted if law is not declared or stated vocally to support the conclusion reached for deciding the lis. A mute declaration of the mere conclusion is not contemplated under Article 141. (vide Manager, Panjarapole, Deodar v. C.M. Nat (1997) 2 GLR 1321, 1325)." 53. Let us now refer to the decision of the Hon'ble Gujarat High Court in the case of N.R. Paper & Boards Ltd. (supra) keeping in view the principles laid down in the aforesaid judgments of the Hon'ble apex Court and the Hon'ble Gujarat High Court. The Hon'ble Gujarat High Court in the case of N.R. Paper Boards Ltd. (supra) was dealing with the reference application under Section 256(2) submitted by the CIT. It has been observed in the said judgment at pp. 529 and 530 as under: "Earlier the assessee invoked the writ jurisdiction of this Court seeking to challenge the notices issued to them under Section 143(2) of the Act by which the assessees were required to attend the office of the Revenue in connection with the return of income submitted by them for the asst. yr. 1995-96. The assessee pointed out that the search and seizure operation carried out on 1st Dec., 1995, was concluded on 6th Jan., 1996. Their block assessment under Chapter XIV-B of the Act was made for the block period from 1st April, 1985 to 6th Jan., 1996. In accordance with the provisions of Section 158BB of the Act, the total income was worked out after giving credit for the amount disclosed. The assessee pointed out that the income for the asst. yr. 1995-96 was already computed in the assessment for the block period. Hence, there was no question of proceeding with the regular assessment for the asst. yr. 1995-96. It was further submitted that in any event no addition could be made to the total income disclosed in the said returns in view of the block assessment made for the period which included the said asst. yr.

1995-96. The Division Bench of this Court in the case of N.R. Paper & Boards Ltd. v. Dy. CIT (1998) 234 ITR 733 (Guj) considered the provisions in detail. The Court pointed out that the block assessment of undisclosed income to be charged at a higher rate of tax prescribed was independent of the pending regular assessments and it operated in a different field from the assessment of undisclosed income which was not and would not have been disclosed for the purpose of the Act. Undisclosed income, by Chapter XIV-B, is classified separately for the purposes of assessment and is required to be worked out in the manner prescribed therein and treated to a higher rate of tax. This process did not disturb the assessments already made, of the previous years, and was only intended to sniff out what had remained hidden and not disclosed by the assessee.

There would, therefore, be no overlapping in the nature of the assessment made under this chapter of undisclosed income and the regular assessment made under Section 143(3). The powers of regular assessment are kept intact and so are all the appellate, revisional and other powers affecting such regular assessment and all the statutory consequences flowing from the exercise of such powers would follow along side of this special assessment procedure devised for dealing with undisclosed income as a result of search. It, therefore, follows that the inquiry under Section 143(3) for regular assessment which was pending when the block assessment was made, the AO who comes across evidence and material which was not found or made available in the process of block assessment, cannot ignore the same and he will be duty-bound to make the regular assessment taking into account such evidence and material gathered in the enquiry under Section 143(3) to ensure that proper assessment of total income is made and tax is determined on the basis of such assessment." 54. The Hon'ble High Court in this judgment while declining to call for reference of various questions proposed in the said reference application, relied upon its judgment in the case of N.R. Paper & Boards Ltd. (supra). It may also be relevant here to reproduce the relevant extracts from the said judgment appearing at pp. 741 and 742 : "The definition of "undisclosed income" in Section 158B(b) includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transaction, where such asset, entry or other document or transaction representing wholly or partly income or property which has not been or would not have been disclosed for the purposes of the Act. It, therefore, follows that what the assessee had already disclosed or would have disclosed is not to be treated as undisclosed income.

From the provisions of Section 158BA(1), it would appear that the AO can proceed to assess the undisclosed income only if a search is initiated under Section 132 of the Act by the authorised officer.

The total undisclosed income relating to the block period is to be charged to tax at the higher rate of 60 per cent presently specified in Section 113 of the Act after such undisclosed income is assessed in accordance with the provisions of this chapter by the AO as income of the "block period" as defined in Section 158B(a) of the Act. This has to be done "irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not" as provided in Sub-section (2) of Section 158BA. This expression clearly indicates that the block assessment of undisclosed income and its being charged to a higher rate of tax prescribed, was independent of the pending regular assessments and it operated in a different field from the assessment of undisclosed income which was not and would not have been disclosed for the purposes of the Act. Undisclosed income, by this chapter, is classified separately for the purposes of assessment and is required to be worked out in the manner prescribed therein and treated to a higher rate of tax. This process did not disturb the assessments already made, of the previous years, and was only intended to sniff out what had remained hidden and would not have been disclosed by the assessee. There would, therefore, be no overlapping in the nature of the assessment made under chapter of undisclosed income and the regular assessment made under Section 143(3) of the Act.

If the pending regular assessment proceedings were to be frozen and got substituted by the assessment of the undisclosed income of the block period, the legislature would have been specific on that aspect and would have made it clear that the pending regular assessment proceedings should be dropped. The provisions of this chapter do not either expressly or by necessary implication even remotely indicate that the regular assessment proceedings of a previous year covered in the block period, were required to be stayed or dropped or substituted by the proceedings of this chapter.

Under Sub-section (3) of Section 158BA, where the date of filing the return of income under Section 139(1) for any previous year has not expired, and the income of that previous year or the transactions relating to such income are duly recorded, then such income is not required to be included in the block period. This obviously means that the regular assessment of that previous year which has remained pending, will proceed notwithstanding that it was falling in the block period. The same would be the case where the block period includes only a part of the previous year of which the return is filed for regular assessment, and the regular assessment can proceed notwithstanding that the undisclosed income for a part of that previous year was within the block period." 55. It is apparent from a plain reading of the aforesaid decisions of the Hon'ble Gujarat High Court in the case of N.R. Paper & Boards Ltd. (supra) that the issue decided is as to whether after making of block assessment, regular assessment is barred or prohibited by law. The Hon'ble High Court has held that there would be no overlapping in the nature of assessment made under this chapter of undisclosed income and the regular assessment made under Section 143(3). The powers of regular assessment are kept intact. All the provisions affecting such regular assessments and all the statutory consequences flowing from exercise of such powers would follow along with this special assessment procedure devised for dealing with undisclosed income as a result of search.

56. The legislature thought it fit to insert an Explanation to Section 158BA by the Finance (No. 2) Act, 1998 with retrospective effect from 1st July, 1995 to explain and declare that the assessment made under Chapter XIV-B of the Act shall be in addition to the regular assessment in respect of each previous year included in the block period, and the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period. It further provides that the income assessed in this chapter shall not be included in the regular assessment of any previous year included in the block period. The mere fact that the AO is empowered to assess the concealed income in regular assessment does not lead to the conclusion that what the ITO can assess in regular assessment cannot be assessed in block assessment. The Hon'ble Gujarat High Court while dealing with the reference application under Section 256(2) has declined to refer the various questions suggested by the CIT mainly on the ground that the questions proposed by the Revenue did not raise any question of law and it has also been observed that where the assessee has disclosed the particulars of income or expenditure in the return/books of accounts, the AO cannot take a different view on the basis of "same material". Such observations have been made by following the judgment reported in (1998) 234 ITR 733 (Guj) (supra). The judgment of the Hon'ble Gujarat High Court in the case of N.R. Paper & Boards Ltd., if read in the context of questions raised before the Court, cannot be read as having held that even if the material found during the course of search exposes the falsity of the entries made in the regular books of accounts, the consequent concealed income cannot be assessed as undisclosed income in block assessment under Chapter XIV-B.In the present case the addition in respect of purchases made from the alleged bogus suppliers has originated on the basis of material found and seized during the search. Certain blank bill books, signed cheque books and other documents of various parties including these five supplier concerns were found and seized from the office premises of the assessee during the search. The post-search investigation clearly indicates that these five parties did not in fact supply any material to the assessee but they were only issuing fictitious bills. They may be called "billing agents" or "name lenders". Whether they acted as billing agents/name lenders for and on behalf of the assessee as well as for and on behalf of various other parties, is a different question but ample material has been brought on record to adequately prove that these five parties from whom the assessee claimed to have made purchases of wash cotton seed oil were not the real suppliers of such material but they were only issuing fictitious bills. The falsity of the claim for purchases shown as purchases made from these billing agents/name lenders resulting in addition on account of either bogus purchases or inflated purchases will surely come within the ambit of undisclosed income as defined in Section 158B(b) as amended by the Finance Act, 2002 with retrospective effect from 1st July, 1995. The said provision is reproduced below: (b) "undisclosed income" includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act or any expense, deduction or allowance claimed under this Act which is found to be false." "158BB(1).--The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the AO and relatable to such evidence, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined......" 57. A plain reading of Section 158B(b) clearly indicates that any expense, deduction or allowance claimed under this chapter which is found to be false as a result of search will come within the ambit of undisclosed income under Chapter XIV-B. The expressions "on the basis of evidence found as a result of search" or "other documents and such other materials of information as are available with the AO and relatable to such evidence, the undisclosed income so detected as a result of search and/or as a result of other material or information as are available with the AO, will be assessable as undisclosed income in assessment for the block period. It may be relevant here to mention that such other material or information as are available with the AO used in Section 158BB(1) would include material, information and evidence gathered as a result of post-search investigation on the basis of evidence found during the search or found as a result of search.

Such information as would be available with the AO can be made the base for computation of undisclosed income of the block period. The term, the AO used in Section 158BB(1), is distinct from authorised officers who conducted the search. It, therefore, clearly indicates that the post-search investigation made by the Dy. DIT/Addl. DIT and by the AO in furtherance to the evidence found during the search can be validly taken into consideration, if such material available with the AO exposes the falsity of the entries recorded in the regular books of accounts in normal course.

58. It may also be relevant here to add that the regular assessments for asst. yrs. 1998-99 and 1999-2000 have already been completed by the AO vide orders dt. 28th March, 2001 and 27th March, 2002. The AO has not made any addition in respect of such bogus bills obtained by the assessee from these billing agents/name lenders. The addition of only Rs. 1,18,13,717 has been made in respect of alleged unaccounted payments to Krishna Industries and Vimal Industries, which perhaps represent payments deposited in the bank accounts of these two billing agents name lenders after the date of search. It is not known what has been decided in further appeal, if any, made before the CIT(A) for asst. yr. 1999-2000. This clearly shows that the assessee as well as the AO both had understood the relevant provisions in the same manner, namely, that the addition, if any, is required to be made in respect of alleged bogus purchases or inflated purchases made from these five suppliers, it is to be made in the block assessment and not necessarily in the regular assessment. If this point is not considered in block assessment, it will escape tax altogether, as regular assessments have already been made, in which no such additions have been made. In view of the aforesaid facts and discussions, we are of the view that the question relating to addition of purchases made, from these bogus suppliers or addition in respect of inflated purchase price shown as paid to these bogus suppliers comes within the ambit of block assessment under Chapter XIV-B.59. The other main argument advanced by the learned counsel was that the impugned assessment made by the AO for the block period is solely based on enquiries made by the Addl. DIT/Dy. DIT and on the appraisal report sent by them. All the affidavits/statements on which the AO has placed reliance were obtained by the investigation wing. The AO has simply relied on the appraisal report. The learned counsel has vehemently argued that the Addl. DIT/Dy. DIT have no power to conduct enquiry after the search. The CIT(A) has placed reliance on the judgment of the Hon'ble Gujarat High Court in the case of Arti Gases v.Dy. DIT (supra). The Hon'ble Gujarat High Court in that case at p. 63 has observed as under: "We are of the view that the notices under Section 131(1A) can also be issued after completion of the search undertaken under the provisions of Section 132 of the Act. In our opinion, it would be absolutely logical to call for information so as to have better particulars or to have a complete idea about the material seized during the search. If some material is seized at the time of the search and the authorised officer wants to have some details so as to understand the nature of the documents, he may issue notice under Section 131(1A) of the Act. In our opinion, in a given case such a notice cannot only help the Department but can also help the assessee. If the assessee is in a position to give more explanation so as to satisfy the authorised officer that the documents seized by him do not reveal any undisclosed income, but the income or transactions referred to in the documents had been duly shown by him in his books of account or if the assessee gives any information to the effect that the first impression of the authorised officer with regard to the nature of the documents was not correct, we are sure that such a notice would help the assessee himself. If the assessee is called upon to give some information or to explain certain documents or writings seized during the process of search, in our opinion, no harm can be caused to the assessee and as stated hereinabove, such particulars can be helpful not only to the Department but to the assessee also. We, therefore, do not agree with the submissions made by the learned advocate, Shri Puj, that such a notice can be issued only before intimation of proceedings under Section 132 of the Act. Moreover, even under the provisions of Section 133 of the Act, the AO or the officers referred to in the said section are having power to call for information. So issuance of such a notice during or after the search cannot be said to be bad in law." 60. Reliance placed by the learned counsel on the judgments of the Hon'ble Supreme Court in the cases of CIT v. Plantation Corporation of Kerala (supra) and Andhra Pradesh Chambers v. State of AP and Ors.

(2001) 247 ITR 36 (SC) holding that resort to any interpretative process to unfold legislative intent in a case where statutory language is clear, is impermissible, is misplaced, as the judgment of the Hon'ble Gujarat High Court in the case of Arti Gases (supra) is a direct decision involving interpretation of the relevant provisions contained in the IT Act, 1961. Furthermore, there is no merit in the aforesaid submissions of the 4earned counsel as the AO has provided adequate and reasonable opportunity to the assessee in respect of all such material, affidavits, statements obtained by the Dy. DIT/Addl. DIT in the course of assessment proceedings for the block period. A perusal of the assessment order at p. 2 shows that the AO gave complete details about such inquiries, affidavits/statements along with the letter dt.

4th Dec., 2000. Thereafter, the AO gave several opportunities to the assessee in respect of all such material gathered by the Addl. DIT/Dy.

DIT before using the same against the assessee in the assessment order.

The AO has thus fully complied with the relevant provisions of law and the principles of natural justice before using the material against the assessee. This contention of the learned counsel also, therefore, has no merit.

61. We have carefully gone through all the decisions cited by the learned representatives of the parties. It is well settled law that each case will depend on the facts and circumstances of that case. The decision in every case has to be arrived at on the basis of appreciation of facts, material and evidence existing on records.

However, such evidence existing on records should be appreciated and evaluated on the basis of principles of law emerging from various decisions cited by the learned representatives. We have also indicated hereinbefore as to how the facts of various cases relied upon by the learned counsel are different and distinguishable from the facts of the present case. We will however bear in mind the various principles laid down by the Hon'ble Courts while considering the facts and material relating to the present case.

62. The most important principle of law emerging from the various decisions cited by the learned counsel is that the burden of establishing that these five suppliers were bogus suppliers or that they were benamis of the assessee, lies on the Department. Such serious nature of allegation demands a credible proof of a high order to support such allegations. The burden of establishing mala fides therefore clearly lies on the Revenue. Equally well settled principle of law emerging from the various decisions cited by the learned representatives of both sides, is that the onus lies on the assessee to prove the genuineness of any expenditure, which is claimed as deduction in computing its taxable income. Therefore, the onus in the instant case, squarely lies on the assessee to prove the genuineness of purchases of cotton seed oil said to have been purchased from these five parties, which have been held to be bogus parties by the Departmental authorities. It is incumbent on the assessee to prove that the suppliers were genuine suppliers of cotton seed oil and they really supplied the raw material to the assessee. Such a burden had to be discharged by the assessee with very strong, cogent and clinching evidence in view of blatant denial by all the five parties coupled with the various other circumstantial evidence referred to in the assessment order.

63. Let us examine the facts relating to these five parties from whom the assessee claimed to have made purchases of wash cotton seed oil aggregating to Rs. 11.99 crores. The detailed facts stated by the AO in the assessment order in relation to all these five parties viz. Adinath Corporation, Tirupati Corporation, M/s Krishna Industries, M/s Karnavati Industries and M/s Vimal Industries, clearly indicate the following facts and features: (A) Certain blank bill books, blank signed cheque books, letter heads and vouchers of these concerns were found from the business premises of the assessee during the course of search conducted on 24th Feb., 1999.

(B)(i) There are various similar features in relation to bank accounts of all these suppliers. For instance, the bank account of Adinath Corporation was opened on 17th April, 1998 by depositing Rs. 1,000 in cash on that date during the block period from 17th April, 1998 to 7th July, 1998. The total deposits in their bank account was Rs. 2,10,54,076.50. Whenever any cheque given by the assessee towards payment of purchase price to this party was credited in their bank account, on that very day, on most of the occasions, an equivalent amount had been withdrawn by a self cheque. For instance, cheque of Rs. 3,69,857 was credited in their bank account on 23rd April, 1998 and there is a cash withdrawal of an equivalent amount on that very day. Most of the times, there is a withdrawal of an equivalent amount by self cheque on the date of deposit of the cheque on their account. This bank account was introduced by Shri Nileshbhai K. Patel, as director of the appellant-company. The balance in this bank account after such withdrawal soon after the deposit of the cheque mostly remained at the same figure of Rs. 5041. The learned Departmental Representative has submitted a copy of letter dt. 20th March, 2001 from Mehsana Urban Co-op. Bank Ltd. stating that as per the statement of account of Adinath Corporation account No. 531, all credit entries by transfer during the period from 17th April, 1998 to 7th July, 1998 are from NKPL. It clearly shows that so far in bank account of Adinath Corporation is concerned, the entire cheques deposited in this bank account were given by the appellant-company towards payments of purchase bills obtained from them. The corresponding debits in the bank account in the normal course should have been given by way of cheques to those mills from whom M/s Adinath Corporation purchased the wash cotton seed oil and supplied the same to the assessee. However, we do not find any mention in this bank account showing any cheque issued to any party. All the withdrawals are by way of self cash cheques. It is true that the bank accounts of other parties were not introduced by Shri Nileshbhai K. Patel as in the case of Adinath Corporation but there is some inter-connection of this concern with the others.

M/s Tirupati Corporation is owned by the same person, namely, Shri J.J. Doshi. For example, the following three cheques have been debited in the account of M/s Adinath Corporation as per the copy placed at p. 37 of the paper book dt. 21st Oct., 2002 submitted by the Department: These amounts have been credited in the bank account of M/s Tirupati Corporation with Visnagar Nagrik Sahakari Bank Ltd. A copy of account of Tirupati Corporation in the books of the assessee has also been placed at p. 42 to 45 of the said paper book, which shows that the purchase bills were obtained from Tirupati Corporation only upto 13th Feb., 1998. Thereafter, that account was discontinued and purchase bills were obtained from Adinath Corporation from 8th April, 1998 to 7th July, 1998. Likewise, cheque No. 79489 dt. 7th July, 1998 for Rs. 3,79,967 debited in the account of Krishna Industries in the books of the assessee has been deposited in the bank account No. 531 with Mehsana Urban Co-op. Bank Ltd. in the name of M/s Adinath Corporation. It may also be relevant here to mention that the total purchases claimed to have been made by the assessee from M/s Adinath Corporation during the period from 8th April, 1998 to 7th July, 1998 was Rs. 2,16,13,276 out of which deposits in their bank account were only Rs. 2,10,54,076. This implies that remaining cheques must have been deposited by M/s Adinath Corporation in some other bank accounts.

(B)(ii) The bank account of M/s Tirupati Corporation was also opened with an initial deposit of Rs. 1,000 on 29th Sept., 1997. The cheques deposited in this account which are mostly from NKPL (assessee-company) are also followed by immediate withdrawal of an equivalent amount on most of the occasions leaving a balance of Rs. 7,616 on most of the days. Most of the cheques are either cash withdrawn or have been issued in favour of Triveni Corporation, as is apparent from the narration given in the copy of bank statement placed at pp. 67 and 68 of the paper book dt. 1st July, 2002 submitted by the assessee.

(B)(iii) The bank account of M/e Vimal Industries was also opened with an initial deposit of Rs. 1,000 on 18th June, 1998. The transactions of purchase bills obtained from this party pertained to the period from July, 1998 to December, 1998. M/s Vimal Industries had also withdrawn the amounts from time to time by way of self cheques soon after the respective cheques from various parties were credited. It is true that the total deposits in the account of M/s Vimal Industries with Mehsana Urban Co-op. Bank Ltd. account No. 1117 as per the assessment order for the period from 18th June, 1998 to 19th April, 1999 is Rs. 10,50,05,834 and purchases made by the assessee from this party has been shown at Rs. 11,48,34,121 only, which indicates that M/s Vimal Industries have received remaining cheques from various other parties and the Department has not been able to ascertain as to which other parties have made payments by cheques to M/s Vimal Industries. A perusal of bank account of M/s Vimal Industries submitted at pp. 69 to 78 indicates that substantial transactions have also continued in this account even after December, 1998, when the purchases by the assessee from this party had discontinued. After December, 1998, most of the withdrawals in the bank account of M/s Vimal Industries are by way of cheques against which the expression "self" has not been mentioned in the copies of bank statements. This account has been finally closed on 12th May, 1999. No inquiry has also been made by the Department about destination of withdrawals made by cheques from this bank account. But the practice of withdrawing substantial amounts till the purchases by the assessee from M/s Vimal Industries continued to apply in the case of M/s Vimal Industries, though various payments even prior to December, 1998 have been made by cheques other than the cheques marked as "self" cheques.

(B)(iv) Krishna Industries : They opened bank account No. 4203 with Visnagar Nagrik Sahakari Bank Ltd. Usmanpura Branch on 30th June, 1998 with an initial deposit of Rs. 1,100. The total deposits in this bank account for the period from 30th June, 1998 to 21st July, 1998 were Rs. 29,93,310 as mentioned at p. 20 of the assessment order which tallies with copies of bank statement furnished at p. 79 of the paper book dt. 1st July, 2002. The assessee in the paper book has also submitted copy of bank statement of Krishna Industries with Mehsana Urban Co-op. Bank account No. 1130. This account was opened with an initial deposit of Rs. 1,000 on 2nd July, 1998. The total purchases claimed to have been made by the assessee from this party were of Rs. 3,19,56,782. The total deposits credited in the bank accounts of Krishna Industries as mentioned at p. 34 of the assessment order in Rs. 2,79,01,621. The deposits in bank account No. 4203 with Visnagar Nagrik Sahakari Bank were followed by withdrawal of an equivalent amount on the same day when the cheques were credited. However, most of the withdrawals in other bank account No. 1130 with Mehsana Urban Co-op. Bank are also by way of self cheques but there are other few withdrawals by way of cheques/DDs. For example there is a debit of Rs. 6,50,100 by way of demand draft dt. 28th July, 1998. Likewise, there are some withdrawals by cheques also. But most of the withdrawals from this bank account are by way of self cheques of substantial amounts withdrawn almost on the same day when corresponding cheques were credited in the said bank account.

(B)(v) Karnavati Industries : They also opened their account on 29th Dec., 1997 with initial deposit of Rs. 1,000. The total deposits in the said account from 29th Dec., 1997 to 29th Dec., 1998 are Rs. 12,30,13,608 as per copy of bank statement submitted at pp. 87 to 101 of the said paper book. The total purchase bills obtained by the assessee from this party were only of Rs. 38,10,000, A copy of account of Karnavati Industries in the books of assessee submitted at pp. 57 to 59 shows the total debits in this account to the tune of Rs. 2,28,77,001. The total credits have been shown at Rs. 2,26,14,069 for the period from 18th June, 1998 to 31st March, 1999.

There is a closing balance of Rs. 2,62,932 as on 31st March, 1999.

The nature of debits in this accounts have not been discussed. There are various credits in this account with the narration that the "amount received from Vimal Industries on their behalf". The debits are mostly supported by narration such as GJ-3T-2492 on 9th July, 1998 for Rs. 35,12,040. A perusal of the bank account shows that inspite of transactions running into more than Rs. 12 crores in this bank account, the balance at the end of most of the days throughout the period was ranging between Rs. 1,000 to Rs. 6,000.

(B)(vi) These are some of the unusual features pertaining to the bank accounts of these bogus suppliers. If they would have been genuine suppliers capable of supplying wash cotton seed oil to the tune of several lacs/crores in a short period like in the present case, they would surely invest adequate capital of their own, which in the present case, is not evident from their bank accounts which shows that all these accounts were opened with initial amount of Rs. 1000 or Rs. 1100 and balance in all these accounts for most of the times ranged between small figures of Rs. 1000 to Rs. 10,000. Had they really supplied the goods on credit of such large magnitude to the assessee, as claimed by the assessee, they will have some evidence of substantial contribution of capital and/or substantial credit purchases made from various mills/big traders. The debits in their bank accounts would have mostly been by way of crossed/account payee cheques issued in favour of those oil mills/big traders from whom they have purchased such material and in turn supplied to the assessee. The major withdrawals by self cheques immediately when the cheques in their bank accounts were credited exposes the impossibility of their having supplied such material of lacs/crores of rupees on credit to the assessee.

(C) The ITO made inquiries from sales-tax authorities in respect of some of these suppliers. Those inquiries revealed that the copies of ration cards given by these name lenders to sales-tax Department were found to be fake, Copies of electricity bills did not pertain to the addresses given. Also the residential addresses of owners given to the sales-tax authorities were not correct.

(D) The notice sent by the IT authorities to these suppliers at the addresses given to the banks were returned back. The inquiries conducted through the inspector revealed that none of them existed at the given addresses.

(E) Most vital and significant evidence brought on records by the IT authorities is clear and categorical admission by all these parties in the form of affidavits/statements. Copies of affidavits/statements given by all these supplier concerns referred to in the assessment orders clearly indicate that all of them have clearly denied having supplied any material to the assessee, They also stated that they were being paid petty monthly amounts by Shri Nilesh K. Patel for signing cheques, bills and other documents in the names of these bogus concerns. The assessee contended, that no reliance on these affidavits/statements obtained by the Dy.

DIT/Addl. DIT behind back of the assessee, should be placed, as they were not examined in the presence of the assessee nor the assessee was allowed to cross-examine them. It is pertinent to mention here that the AO vide very first questionnaire dt. 4th Dec., 2000 which is reproduced at p. 2 and 3 of the assessment order gave complete gist of inquiries conducted in respect of purchases made from these parties. Copies of all relevant statements/affidavits given by the owners of these supplier concerns had also been provided, as is evident from para 9 of the said letter dt. 4th Dec., 2000. The assessee furnished reply dt. 26th Dec., 2000. Copy of this letter has been placed on pp. 10 to 13 of the paper book submitted by the Department on 21st Oct., 2002. The assessee in this letter has submitted in para 8.1 that copies of accounts of all these five parties from the books of accounts of the assessee are furnished. In para 9 it has, inter alia, been stated as under: "It may please further be noted that certain affidavits are there and certain other evidences were also found during search but since the transactions recorded in the books of account in the normal course and therefore it does not fall within the purview of block assessment." It is apparent from the aforesaid letter that even after receiving the copies of affidavits/statements and other documents on the basis of which the AO suspected the genuineness of these purchases, the assessee did not ask the ITO to produce these suppliers and brokers for their cross-examination nor any material in rebuttal of such clinching and categorical denial by the suppliers and brokers, was furnished. The AO thereafter once again gave a show-cause notice dt. 8th Jan., 2001 which has been reproduced at p. 28 of the assessment order. The AO clearly stated that the purchases made from all these parties are bogus in nature. The gist of inquiries conducted by the Department along with the copies of statements/affidavits have already been given to the assessee along with the letter dt. 4th Dec., 2000, The assessee was given one more opportunity to explain the same.

64. The assessee submitted a reply dt. 22nd Jan., 2001 which has been reproduced at pp. 28 and 29 of the assessment order. In this letter the assessee has inter alia, simply stated as under: "You have based your such opinion on the basis of statements and affidavits of certain parties.

In this connection, it may please be noted that as far as the company is concerned, the company has purchased the goods from these parties and has made the payment through a/c payee cheque which is not disputed by any of the above referred parties.

Further, it may please be noted that statements and affidavits appears to be similar. If the statements are recorded from different parties, contents are bound to be different." The assessee did not ask the AO even at this stage to examine or cross-examine the suppliers and the brokers in their presence. The assessee only repeated the arguments that material had really been received and the payments had been made by account payee cheques. It was also stated that since these transactions are recorded in the regular books of accounts, therefore, the question of considering the same in block assessment does not arise.

65. Thereafter, it appears that the affidavits of some of these suppliers retracting from their earlier affidavits given to Dy. DIT, were furnished in the course of assessment proceedings in the case of Shri Nilesh K. Patel. A copy of letter dt. 23rd Feb., 2001 from Shri Nileshbhai Patel to the Dy. CIT has been placed at pp. 30 to 32 of the Department's paper book. In this letter it has been stated that the original affidavits of proprietors of eight concerns including all these five parties in question in the present case are enclosed herewith. The affidavit of Shri J.J. Doshi, proprietor of M/s Adinath Corporation and M/s Tirupati Corporation, though specifically stated as having been enclosed with this letter dt. 23rd Feb., 2001 was not submitted with the said letter. Only four affidavits appear to have been submitted along with the said letter dt. 23rd Feb., 2001 in the assessment proceedings in the case of Shri Nileshbhai K. Patel. The learned Senior Departmental Representative submitted that these affidavits were submitted at the fag end of the period of limitation in the case of Shri Nilesh K. Patel. The affidavit of Shri J.J. Doshi, who is proprietor of two parties, namely, M/s Adinath Corporation and M/s Tirupati Corporation was submitted to the AO along with the letter dt.

20th April, 2001. Copy of the letter has been placed at p. 29 of the Departmental paper book. It was pointed out by the learned Senior Departmental Representative that 20th April, 2001 was Friday. The next two days were holidays being Saturday and Sunday. One more holiday was there on 27th April, 2001 on account of Mahavir Jayanti. The case was going to be barred by limitation of time on 30th April, 2001. The assessee produced all these affidavits at the fag end of the assessment proceedings, when it was soon going to be barred by limitation of time.

No request for cross-examination of these suppliers or brokers was made by the assessee in any of the letters submitted to the AO during the course of assessment proceedings.

66. The burden lies on the assessee to prove that the suppliers were genuine suppliers and they really had capacity to supply wash cotton seed oil of such large magnitude costing several lakhs/crores within such short period and they in fact had supplied such material to the assessee. In the normal course, if these purchases of Rs. 11.99 crores would have really and genuinely been made from these parties, as claimed by the assessee, the assessee would at once raise a strong protest after receiving the copies of statements of those suppliers/brokers explicitly and emphatically denying such transactions and the assessee would have submitted in the very first reply to show-cause notice dt. 4th Dec., 2000 that their affidavits are blatantly false and all these persons should be examined in their presence. The assessee should have himself produced all these suppliers/brokers soon after the receipt of first show-cause notice or well before the completion of the block assessment before the AO to acquaint him with the reality in rebuttal of those affidavits/statements obtained behind his back by the Dy. DIT. The assessee simply submitted the affidavits of these suppliers at the fag end of the assessment proceedings and did not produce these suppliers before the AO along with their books of accounts and records from which the capacity of the suppliers and the reality and genuineness of credit sales of such large magnitude made by them to the assessee could have been verified. The assessee also did not produce the brokers through whom it was stated by Shri Nileshbhai Patel that the purchases from these parties were made through them. The suppliers who could give their affidavits subsequently in which they have retracted from their earlier affidavits/statements to Dy. DIT, were therefore fully co-operating with the assessee and there is no reason as to why the assessee did not or could not produce them before the AO for their examination along with the relevant records.

67. In the interest of fair play and justice, a specific opportunity was given to the learned counsel appearing for the assessee during the course of hearing before us, to produce all these suppliers along with their records before the Tribunal. The learned counsel after a deep consideration submitted a reply on the next date of hearing that the assessee cannot produce any of those suppliers before the Tribunal, as they are not under the control of the assessee. It is well settled law that onus lies on the assessee to support its claim for grant of deduction of any expenditure. Therefore the onus to prove the genuineness of purchases from these parties lies on the assessee. Such a burden, in the instant case, was very heavy in view of clear and unequivocal affidavits/statements given by suppliers. It is equally well settled law that an admission made by the concerned persons is an extremely important piece of evidence. It is true that it cannot be said to be conclusive. The party who wants to retract from an earlier admission can show that it was obtained under coercion and it is incorrect. However allegation of coercion cannot be accepted on a mere statement; it is to be supported by positive evidence. Likewise the incorrectness of earlier admission also has to be proved by producing cogent material and evidence. The assessee rested with submission of subsequent affidavits of suppliers. The least, in rebuttal of earlier affidavits/statements, which the assessee should have done, in addition to submission of their affidavits, is to produce all those suppliers and brokers along with the books of accounts, purchase vouchers and evidence to show their capacity to supply goods worth several lakhs/crores in such short period. The assessee obtained those subsequent self-serving affidavits from the suppliers. Therefore, the onus lies upon the assessee to produce those persons along with their records, to prove that earlier affidavits do not contain true and correct facts and were obtained under coercion. The assessee failed to produce them before the AO. They have also failed to produce them before the Tribunal along with their relevant records, though a specific opportunity was granted to them during hearing. All these facts prove beyond doubt that all the five supplier concerns were created/floated only for the purposes of issuing fake/fictitious bills.

They had no capacity to supply wash cotton seed oil of such large magnitude to the assessee. They also did not have adequate capital and infrastructure for carrying out business of such large scale. None of them appear to be existing income-tax assessee as GIR Number/PAN Number and ward, etc. are not stated in any of their affidavits. We therefore agree with the findings of the learned Departmental authorities that all these suppliers were only name lenders/billing agents. The purchases claimed to have been made by the assessee from them do not represent genuine purchases made from those parties.

68. The question still remains to be considered is as to whether the assessee had in fact received the material in question which was claimed as allegedly purchased from these name lenders/billing agents.

The evidence existing on records, which will be discussed in details hereinafter, indicates that the material in question "wash cotton seed oil" shown as purchased through such fictitious invoices obtained in the names of five bogus parties, appear to have really been received.

Such evidence on records are briefly as follows: (A) Various records of contemporary period including general inward register, daily gate outward register were found and seized during the course of search. Gate outward register was maintained by security staff of the factory of NKPL. In the assessment order, the AO while placing reliance on the statement of Shri Kamlesh L. Patel has observed that certain purchases are not found in the inward register, which is most reliable and authentic register. The assessee gave explanation vide letter dt. 22nd Jan., 2001 and stated that all the purchases from these parties have duly been recorded in the seized inward register and the same are verifiable from the regular books of accounts as well as inward register, stock register lying seized with the Department. The AO has not adversely commented on the aforesaid submissions made on behalf of the assessee during the course of assessment proceedings.

(B) The Tribunal required the learned Senior Departmental Representative to verify from the seized inward register/daily gate outward register lying seized with the Department, the fact whether entries in respect of receipt of material represented by these fictitious invoices are recorded in such daily gate outward register/inward register. The learned Senior Departmental Representative vide para 3.12 of his written submissions has admitted that all the entries of such purchases made from bogus parties are appearing in the inward register but he has pointed out certain strange coincidence in relation to those entries. For instance, he has pointed out that nine trucks shown as per inward register 2311 to 2319 have been shown as received on 16th Nov., 1997 from M/s Tirupati Corporation. All such nine trucks have been emptied within one hour and 15 minutes as per inward and outward time recorded in the said register. It has been pointed out that the tankers received from other regular dealers have taken more than 4 to 5 hours in carrying out the entire process of unloading which includes weighment, taking sample from the tanker for the purpose of checking the quality, colour and odour and then after obtaining lab report it has to be emptied in the assessee's tanks. The assessee in the rejoinder has replied that they had adequate capacity to unload 10 to 12 tankers at their unloading station. It has also been submitted that there are other instances where third parties have unloaded their tankers within such short time. The day-to-day stock records are prepared on the basis of raw material entered into the said inward register. The receipt of material is also corroborated by various other documents of contemporary period such as weighment of the material inward receipts and analysis reports etc. All these documents were furnished to the AO to prove the fact of real receipt of material shown as purchased through such fictitious invoices.

(C) The learned CIT(A) called for a remand report from the AO during the course of appellate proceedings before him. As already stated hereinbefore, the AO in his remand report dt. 26th Dec., 2001 has clearly stated that the test check of the purchase bills and other supporting documents with reference to inward register, stock register etc. have been made and it is found that the entries in respect of purchases made from the above parties are entered and consumed. This remand report given by the AO after verifying the relevant facts stated in the documents produced by the assessee with the contents of seized registers, provide a clinching proof in favour of the assessee's contention that the material in question had really been received and used in the process of production.

(D) One more vital evidence which supports the assessee's contention about real receipt of material in question is that a detailed stock inventory was prepared by the authorised officers of the Department at the time of conducting the search on 24th Feb., 1999 and 29th Feb., 1999. The AO required the assessee to reconcile the stocks found during the course of search with the stock records and financial books of accounts. The assessee submitted a reply vide letter dt. 14th March, 2001 in which it was stated that complete reconciliation of stock found during the course of search and as per books of accounts is enclosed from which it would be seen that all the items found as per the stock inventory prepared at the time of search are fully verifiable as per the stock records maintained by the assessee-company. The AO accepted this explanation after detailed verification and no addition has been made in the assessment order in relation to any unexplained stocks found during the course of search. This also proves the fact that the material in question had really been received.

69. Now let us consider the assessee's submissions that assuming that the purchase invoices were obtained from name lenders/billing agents but the material has really been received/purchased, the assessee is entitled to deduction of reasonable price in respect of such material purchased and consumed. The AO has also reported in the remand report submitted to the CIT(A) that such purchases have been made almost at the prevailing market rate/price charged by other regular dealers.

Therefore no disallowance of any part amount would be justified in the present case, as was done in the case of Vijay Proteins Ltd. (1996) 55 TTJ (Ahd) 76 : (1996) 58 ITD 428 (Ahd) or in some other cases. He also pointed out that part disallowances made in respect of inflation of purchase price made in the cases of Adinath Industries and Arun Industries have been deleted by the Tribunal and those orders of the Tribunal have been confirmed by the Hon'ble Gujarat High Court. The judgment of the Hon'ble Gujarat High Court is binding, says the learned counsel. We have already indicated while discussing the ratio of principles laid down by the Hon'ble Gujarat High Court in these two cases that the facts of the present case are totally different. In the present case there is an unequivocal, clear and emphetic denial by these suppliers as well as brokers in their first affidavits/statements submitted to the Dy. DIT. The assessee has not produced those suppliers/brokers before the AO along with the relevant records. The Tribunal also gave the assessee a specific opportunity to produce those suppliers/brokers along with their books of accounts and other relevant records. The assessee has expressed their inability to produce them before the Tribunal. The facts of those two cases are therefore totally distinguishable as in those cases there was no such clear but categorical denial by the brokers/suppliers. The assessee must have obtained fictitious bills from such billing agents/name lenders with a view to derive some definite gain. It is true that the material in question was received by the assessee but those materials were not received from these billing agents/name lenders" but were received from undisclosed sources or from unknown parties, which was within special and exclusive knowledge of the assessee and the assessee is not willing to disclose the true facts to the Department. It is well known that unaccounted material may be available in the market at much lower price as compared to the purchases made from genuine dealers on the strength of genuine bills. The real suppliers may be willing to sell those products at a much lower rate in view of manifold reasons. There may be saving on account of excise duty, sales-tax or other taxes which may be leviable in respect of manufacture and sale of such goods. The real suppliers or the oil mills may derive substantial saving of income-tax in respect of income from sale of unaccounted goods produced and sold by them. There may be various factors due to which sellers may be willing to charge lower rates for unaccounted goods as compared to accounted goods. The assessee is engaged in the business which is subject to frequent checking by civil supply department of the State Government. The regular checks are made at the factory premises in order to verify whether hoarding is done or not. Thus, there is effective check by food and civil supplies department of the State Government so far as quantitative details are concerned. The main area left with the concerns like the assessee would, therefore, be suppression of income by inflating the purchase price of raw material.

Such material received by the assessee from unknown suppliers or from undisclosed sources also enable the assessee to utilise their black money/unaccounted funds for making purchases of such raw material in cash from open market. The assessee has shown credit purchases from these name lenders/billing agents. A statement of peak has been reproduced in earlier part of this order which shows that the peak amount credited in the account of one of these name lenders/billing agents relating to credit sales alleged to have been made by them to the assessee is Rs. 1,54,14,534. This only gives an idea of the large amount of black money kept utilised by the assessee for making unaccounted purchases from open market in cash and obtaining the bills from billing agents/name lenders to record such quantity of material purchased in their stock registers, to meet the effective checking done by the civil supply department and by other departments. The assessee has not only derived the benefit of circulation of large black money for purchases of such unaccounted material from open market but has also derived extra profit by purchasing them at a much lower rate from the real suppliers/mills, who had really supplied the material in question to the assessee. Therefore what was actual profit derived by the assessee from such device/practice adopted by them is exclusively known to the assessee, The assessee does not want to tell the truth but simply wants to have total deletion on technical and legal grounds which have no valid base whatsoever.

70. The question which now arises for our consideration is as to whether the entire amount of the said bogus purchases should be disallowed or the assessee should be held to be eligible for grant of deduction of a reasonable amount of purchase price of wash cotton seed oil which in fact had really been received by the assessee but was sought to be supported by fictitious invoices obtained from billing agents/name lenders. It is well settled law that tax can be levied only on real income. It is an elementary rule of accountancy as well as of taxation laws that profit cannot be ascertained without deducting cost of purchases from sales, otherwise it would amount to levy of income-tax on gross receipts or on sales. Such recourse is not permissible under any provisions contained in the IT Act. The facts and discussion made hereinabove show that the purchase invoices obtained from five name lenders/billing agents are fictitious. The material and evidence found during the course of search and post-search investigation conducted by the officers of the Department have adequately exposed the falsity of such entries of purchases made in the regular books of accounts. The undisclosed income derived by the assessee out of purchases aggregating to Rs. 11.99 crores shown as having been purchased from these billing agents/name lenders will, therefore, have to be estimated on a reasonable and rational basis so as to determine the figure of undisclosed income liable to tax in the block assessment under Chapter XIV-B. The entire amount of bogus purchases cannot be treated as undisclosed income/concealed income, because material in question had really been received. The inflated portion of purchase price mentioned in the fictitious invoices are within exclusive knowledge of the assessee. The assessee is not willing to tell the truth. Therefore, the estimate of such undisclosed income liable to tax in block assessment in relation to such bogus purchases of Rs. 11.99 crores will have to be made. As already stated hereinbefore, the real mills/wholesale dealers genuinely engaged in sale and supply of such material may be willing to sell such unaccounted goods at a much lower rates in view of various manifold advantages, such as savings in all kinds of taxes, duties, utilisation of black money and various other factors, The legislature in its wisdom has amended Section 40A(3) by the Finance Act, 1995 w.e.f. 1st April, 1996 which provides for disallowance of 20 per cent of such expenditure incurred otherwise than by crossed or account payee cheques. This figure of 20 per cent must have been arrived at by taking into consideration all the relevant facts. This 20 per cent disallowance is contemplated in cases where black money is not employed in respect of such unaccounted purchases. It is applicable only in cases where the payment of expenditure exceeding Rs. 20,000 is made otherwise than by a crossed cheque or crossed demand draft. Here is a case where not only the benefit by way of avoidance of various kinds of taxes such as excise duty, sales-tax at various stages of inputs are there but it is a case where such purchases on the strength of fictitious invoices given by the billing agents/name lenders are treated as credit purchases. Therefore, while estimating the amount liable to be treated as undisclosed income in relation to such purchases aggregating to Rs. 11.99 crores, the question relating to unexplained non-genuine credit shown in the accounts of these name lenders/billing agents will have to be kept in mind. The assessee's counsel contended that no such addition was made by the AO under Section 68 nor Section 68 applies in relation to such credit purchases. All these facts and decisions submitted by the learned counsel are not relevant because we are not making any fresh addition in respect of any unexplained cash credit but this vital factor is being taken into consideration while estimating the amount of undisclosed income liable to tax in the block assessment in relation to such purchases of Rs. 11.99 crores. The peak credit as on any one date in the account of one of these billing agents/name lenders is Rs. 1,54,14,534. This chart was submitted by the learned Senior Departmental Representative and copies were given to the learned counsel for the assessee. No mistake in the said peak statements were pointed out by the learned counsel. The addition in respect of such unexplained part credit in the accounts of bogus suppliers can be made under Section 68 or 69C in view of decisions in the cases of Vijay Proteins Ltd. (supra) and is also supported by judgment of Hon'ble Rajasthan High Court in the case of Indian Woollen Carpet Factory v.ITAT. No separate or fresh addition is being made by us but this important factor is taken into consideration as to how much addition out of addition of Rs. 11.99 crores should be sustained. Apart from this the estimate of 25 per cent disallowance made in the case of Vijay Proteins (supra) is also relevant as that case relates to a concern engaged in the similar nature of business and there also purchase invoices were obtained from billing agents/name lenders but material in fact had been received from unknown sources. The Tribunal after a careful consideration in that case confirmed the disallowance of 25 per cent out of total amount of such bogus purchases. No separate addition was made in respect of peak credit in the accounts of those bogus suppliers as the amount of disallowance made at the rate of 25 per cent adequately covered the amount of unexplained peak credit. One of us (AM) was a party to the said decision in the case of Vijay Proteins Ltd. (supra).

71. On a careful consideration of the entire relevant facts, we are of the opinion that it would be just and proper to direct the AO to restrict the addition on account of inflated purchases to 25 per cent i.e. Rs. 3 crores which is approximately equal to 25 per cent of Rs. 11.99 crores shown to have been purchased from these five bogus suppliers.

72. Now we will deal with ground No. 4 raised in NKPL's appeal. The assessee has challenged the confirmation of an addition of Rs. 3,86,968 being the profit on alleged sales made by the company. The AO has dealt with this issue in para 8 on p. 35 and onwards of the assessment order.

During the course of search, one loose paper file was seized from the premises of NKPL, which is marked as Annex. A-G of Panchnama prepared at the time of search. In this file, certain sale bills of NKIL in respect of sales made to NKPL were found. The said file also contained certain sale bills issued by NKPL in respect of sales made to Triveni Corporation and Tirupati Corporation. These bills of purchases and sales found from the said seized file were not accounted for in the books of accounts of the assessee as well as in the books of NKIL.

Before the AO, it was submitted on behalf of the assessee that the assessee-company raised certain sale bills in favour of Triveni Corporation and Tirupati Corporation in anticipation of goods to be purchased from NKIL. Finally, NKIL could not deliver the goods and therefore, the company also did not give delivery to Triveni Corporation and Tirupati Corporation. Therefore all these purchase and sale bills are cancelled bills. No actual purchase of goods or sale of goods was made by the assessee. The delivery of the goods was also not effected. This fact was verifiable from the inward register lying seized with the Department in which such transactions are not recorded.

The assessee-company has also not received any payment from Triveni Corporation and Tirupati Corporation in respect of these sale bills which can be verified from their bank statements available with the IT Department. The company also passed a board resolution for cancellation of the bills in respect of abovereferred transactions. A copy of board resolution was also submitted to the AO. The AO considered the submissions made on behalf of the assessee. It was found that the seized bills bear the gate entry numbers at the factory premises of NKPL. Therefore, there is no doubt that the assessee made purchases from NKIL and also sold the goods to Triveni Corporation and Tirupati Corporation as per purchase bills and sale bills found and seized in the file marked as Annex. A-6. The AO therefore made an addition of Rs. 2,01,99,793 in respect of unaccounted purchases from NKIL for the block period for asst. yr. 1998-99. The AO also made separate addition in respect of unaccounted sales so made to Triveni Corporation and Tirupati Corporation on the basis of sale invoices found and seized in file marked as Annex. A-6. The addition in respect of unaccounted sales was made to the tune of Rs. 2,05,86,761.

73. The learned CIT(A) has dealt with this issue in paras 8 to 8.2 on pp. 24 and 25 of his order. The learned CIT(A) has observed that since both the concerns, viz. NKPL and NKIL belong to the same group and addition on account of unaccounted sales has already been confirmed by him in the case of NKIL, no further addition can be made in respect of unexplained purchases in the hands of the appellant. Since what can be taxed is only the profit on the aforesaid sales of Rs. 2,05,86,761, after reducing Rs. 2,01,99,793 being the cost of purchases made by the assessee from NKIL, addition should be sustained only to the tune of Rs. 3,86,968 in substitution of both the aforesaid additions made by the AO. The CIT(A) accordingly sustained the addition of Rs. 3,86,968.

74. The learned counsel appearing on behalf of the assessee reiterated his arguments as were made before the learned Departmental authorities, In the written submissions submitted before the CIT(A), it was submitted vide paras 4.2 to 4.4 that these transactions had not actually taken place. It was admitted that there was a seal of sale entry on the bills of NKIL but the transactions did not finally take place. This can be verified from the day-to-day stock register maintained by NKIL and NKPL. No evidence whatsoever has been adduced by the AO to prove that the assessee has in fact purchased and sold wash cotton seed oil. The addition cannot be made merely on the basis of certain loose papers found during the search. Copy of board's resolution confirming the cancellation of these bills was also furnished at the time of assessment. An alternative prayer was also made before the CIT(A) that if the assessee's contention is not accepted, then only profit on such sales amounting to Rs. 3,86,968 can be taxed. The CIT(A) after considering these submissions confirmed the addition to the extent of Rs. 3,86,968. The learned counsel on the strength of similar arguments urged that the addition of Rs. 3,86,968 should be cancelled.

75. The learned Senior Departmental Representative, on the other hand, vehemently contended that the CIT(A) has erred in deleting the addition of Rs. 2,01,99,793 being purchases made from NKIL, which are proved beyond doubts from the sales invoices issued by NKIL in favour of NKPL, which were found and seized from the business premises of NKPL. Those sale bills bear the gate entry number. It also contains all other particulars such as truck number etc. A subsequent resolution of the board cannot nullify the facts so clearly revealed from the documents found and seized during the course of search. The CIT(A) has grossly erred in directing the AO to restrict the addition to Rs. 3,86,968. The learned Senior Departmental Representative made elaborate arguments in this regard in para 3.12 of his written submissions dt. 29th Oct., 2002 which have been reproduced hereinbefore. It has been mentioned in the said letter that what was purchased by the assessee from NKIL through such sale bills issued by NKIL was wash cotton seed oil. However, copies of sale bills issued by NKPL (the assessee) to Triveni Corporation and Tirupati Corporation are for sale of soyabean oil. How can a person sell soyabean oil out of purchase of wash cotton seed oil, The learned Senior Departmental Representative has also pointed out that there are some entries in the inward register in the name of M/s Kothari Global which bear the same truck numbers and same weight, quantity of wash cotton seed oil which are mentioned in the sale bills issued by NKIL in favour of NKPL, lying amongst seized sale bills file.

The assessee has not given any specific reply to the aforesaid submissions made in the written submissions given by the learned Senior Departmental Representative that what was purchased through these sale invoices issued by NKIL to NKPL was wash cotton seed oil and what was sold by the assessee to Triveni Corporation and Tirupati Corporation was soyabean oil. Copies of some relevant seized documents have been submitted by the Department in their paper book dt. 22nd Oct., 2002.

Copies of bills issued by NKIL to NKPL included in Annex. A-6 clearly shows that the sale invoices were issued by them for wash cotton seed oil. It also bears truck numbers, delivery challan numbers and inward date and number and date on the seal of NKPL. The sale invoices issued by NKPL in favour of Triveni Corporation and Tirupati Corporation are for "Exp. Soyabean Oil". These bills also contain truck numbers and delivery challan numbers, etc.

76. The assessee in the rejoinder has simply stated in para 13.1 that the allegation of the learned Senior Departmental Representative that the supplies by M/s Kothari Global is not correct since Kothari Global has supplied from some traders or manufacturers nearby Ahmedabad. The supply was in December, 1997. The old records are not available.

Further it was also mentioned that such evidence is being produced for the first time before the Tribunal. Such objection was not raised by the Addl. DIT or by the AO or CIT(A). The same cannot therefore be raised for the time before the Tribunal.

77. We have considered the submissions made by the learned representatives of both sides and have gone through the orders of the learned Departmental authorities. The contention of the assessee that submissions made with reference to entries of material received from Kothari Global constitute additional evidence, is not correct. Such a submission has been made on the basis of seized inward register of NKPL lying seized with the Department. The assessee has himself heavily relied upon the entries of the said register while dealing with the main ground of addition relating to receipt of material purchased from bogus suppliers. It is evident from the photo copies of sale invoices issued by NKIL to NKPL and from copies of sale basis issued by NKPL to Triveni Corporation and Tirupati Corporation that what was purchased by the assessee from NKIL was wash cotton seed oil and what was sold by the assessee to Triveni Corporation and Tirupati Corporation was soyabean oil. These two items of purchase and sale reflected from the seized invoices have no nexus with each other. The entries in the seized inward register and outward register are also required to be thoroughly checked with reference to the quantity weight and truck numbers mentioned in these invoices forming part of A-6 in the light of similar material claimed to have been recorded as received from Kothari Global. Nature of purchases from Kothari Global have to be examined with reference to their invoices and its comparison with seized invoices.

78. On a careful consideration of the entire relevant facts, we are of the considered opinion that the orders passed by the CIT(A) and the AO in relation to this ground should be set aside and the matter should be restored back to the AO with a direction to decide the same after conducting a deep investigation. The AO should examine each invoice of sale and purchase found and seized as per Annex. A-6 and verify the same with the entries of relevant dates in the seized inward and outward registers. He should also examine the original minute book. In case he considers it necessary he may examine the concerned persons of the respective concerns who prepared these sale and purchase invoices/bills which were found and seized during the course of search and which according to the assessee did not represent real transactions. The AO will pass fresh order after conducting proper investigation in accordance with the provisions of law and after providing adequate and reasonable opportunity to the assessee.

79. Ground No. (6) relates to levy of interest under Section 158BFA(1).

No arguments were advanced by the learned representatives of both sides in relation to this point. The AO is directed to grant consequential relief.

80. Ground No. (7) relates to initiation of penalty proceedings under Section 271(1)(c). No such ground can be raised in an appeal against the assessment order. Separate appeal will lie against any such penalty, if and when levied. This ground is therefore infructuous and is rejected accordingly.

81. We will now deal with the cross appeal submitted by the Revenue in the case of N.K. Proteins Ltd. being IT (SS) A No. 41/Ahd/2002. The Revenue has raised the following two grounds in this appeal: "1. The learned CIT(A) has erred in law and on facts in deleting the addition of Rs. 31,48,13,392 made on a/c of unexplained investments.

2. The learned CIT(A) has erred in law and on facts in deleting the addition of Rs. 2,01,99,792 made on a/c of unexplained purchases." 82. The AO has discussed this point in para 7 on pp. 34 and 35 of the assessment order which is reproduced as under: As already discussed in the preceding paras, certain bank accounts were found during the course of search of different concerns. After inquiries it was held that these concerns are bogus and purchases made by the assessee from these concerns are added as bogus purchases. From the perusal of these bank accounts, it is noticed that these are in following names :6. Triveni Corporation 3,64,01,356 ----------------Total 31,48,12,332 --------------- These also represent payments made by assessee group concerns for purchases and other expenses. Inquiries are being conducted from banks to find out the concerns which made these payments for purchases and other expenses. Substantive disallowance will be made in these concerns after conclusion of inquiries. However, protectively the addition is made in the case of the assessee being unaccounted payments in asst. yr. 1999-2000.

Therefore total amount of Rs. 31,48,12,332 is added as unaccounted payments for the block period in respective assessment years as under: 83. The addition of similar nature was in the case of NKIL which is subject-matter of revenue's appeal in IT(SS)A No. 38/Ahd/2002. Ground No. (2) of Revenue's appeal in IT(SS)A No. 38/Ahd/2002 in the case of NKIL relates to deletion of addition of Rs. 6,63,19,496 made in respect of alleged unexplained deposits in the accounts of bogus suppliers. The said point has been discussed in para 13 of assessment order passed in the case of NKIL which is reproduced below: As already discussed in the preceding paras, certain bank accounts were found during the course of search of different concerns. After inquiries it was held that" these concerns are bogus and purchases made by the assessee to these concerns are added as bogus purchases.

From the perusal of these bank accounts, it is noticed that in the bank account of Krishna Marketing, total amount of Rs. 2,47,14,062 is deposited during the financial year 1998-99. In the bank account of Somnath Industries total deposits made is amounting to Rs. 3,24,57,568 during the financial year 1998-99. These also represent payments made by assessee group concerns for purchases and other expenses. Inquiries are being conducted from banks to find the concerns which made these payments for purchases and other expenses.

Substantive disallowance will be made in these concerns after conclusion of inquiries, However, protectively the addition is made in the case of the assessee being unaccounted payments in asst. yr.

1999-2000.

In the bank account of Sejal Enterprises, total deposit is made amounting to Rs. 91,47,866 by the assessee for which no explanation was furnished by the assessee. Therefore, amount of Rs. 91,47,866 is added as unaccounted payments in the hands of the assessee for the block period in the asst. yr. 1999-2000.

84. The additions in respect of deposits in the accounts of these alleged bogus suppliers have also been made in the case of Shri Nileshbhai K. Patel on substantive basis. A show-cause notice was issued by the AO on 18th Jan., 2001 to Shri Nileshbhai K. Patel in which it was stated that several blank cheque books and vouchers of number of concerns were found and seized at the office premises of NKPL. The affidavits were filed by the owners of those concerns. From all these affidavits it is clear that these are bogus concerns created by you. The business of these concerns were totally managed by you. The bank accounts relating to those concerns were also managed by you as stated by so-called proprietors of these concerns. The AO, therefore, required the assessee to explain as to why the amounts deposited in the bank accounts of these suppliers be not treated as unaccounted income of the assessee. The details of amounts deposited in these bank accounts were given in the aforesaid show-cause notice as under; It appears that these deposits in the bank accounts of these suppliers are for the period upto the date when copies of their bank accounts were obtained by the Dy. DIT/Addl. DIT. However, details in respect of deposits in their bank accounts upto the date of search i.e. 24th Feb., 1999 have been given in para 10 on p. 33 of the assessment order, which are as under: 85. The AO relying upon the affidavits of those suppliers obtained by the Dy. DIT, which have been discussed while dealing with the issue relating to bogus purchases, made an addition of Rs. 37,19,85,062 which was bifurcated in two years falling in the block period as under:Asst. yr. 1998-99 Rs. 8,08,86,504Asst. yr. 1999-2000 Rs. 29,10.98,558 ------------------ The AO has briefly discussed the evidence against the assessee in relation to such bogus suppliers which, inter alia, include the affidavits/statements given by the suppliers denying having supplied any goods to NKPL and NKIL and statements of brokers and other facts discussed in the assessment orders passed in the case of NKPL and NKIL.

The AO has also discussed various replies and affidavits of suppliers submitted on behalf of the assessee in rebuttal of the earlier affidavits. The AO thus made an addition in respect of entire amount found credited in the bank accounts of these so-called bogus suppliers aggregating to Rs. 37,19,85,062 in the hands of Shri Nileshbhai K.Patel on substantive basis, 86. Before the CIT(A) the assessee prepared and compiled the details from copies of bank accounts of these suppliers supplied by the Department to the assessee and furnished the following summarised details.

"The details of deposits of cheques in the bank account from the above referred companies and outsiders are given below : Triveni Corporation(Goods are sold by NKPLand sale proceeds areaccounted for in thebooks) 87. It was submitted before the CIT(A) that so far as payments aggregating to Rs. 2,83,41,440 and Rs. 11,99,07,754 mentioned in the aforesaid chart are concerned, these payments were made by NKIL and NKPL respectively to these suppliers by cheques. Hence deposits in the bank accounts of these suppliers to the extent the deposits representing cheques received from NKIL and NKPL, cannot be treated as unexplained deposits. The issue relating to alleged bogus purchases made by NKPL and NKIL from these concerns has been dealt with separately in the respective assessment orders but those payments made by cheques by NKIL and NKPL by no stretch of imagination be treated as unexplained deposits in the bank accounts of those bogus suppliers. The same addition cannot be made in the hands of either NKIL or NKPL, nor in the case of Shri Nileshbhai K. Patel. As regards the deposits aggregating to Rs. 21,89,82,084 are concerned, it was contended that all these deposits in the bank accounts of various suppliers have been received by cheques from other parties. The AO has brought no material on record to show that such undisclosed deposits in the bank accounts of these suppliers were made by NKIL or by Shri Nileshbhai K. Patel, On the other hand, the AO, while passing the assessment orders in the cases of NKIL and NKPL, had observed that the inquiries would be made in relation to those deposits by cheques in the accounts of these suppliers to find out which other concerns have made payments by cheques to these suppliers and substantive additions will be made in the hands of those concerns after necessary inquiries and investigation. The assessee has placed reliance on the following judgments before the CIT(A): 88. The CIT(A) after considering the entire relevant facts and material gave the following findings in para 4.8 of his appellate order in the case of Shri Nileshbhai K. Patel.

"4.8 I have carefully considered the submissions made by the appellant's counsel, Shri Ashwini Shah and have also perused the facts of the case laws cited and also the materials which was found during the course of search and also further inquiries conducted by the AO during the course of assessment. After perusing the said materials and records, I have no hesitation in holding that the inference drawn that the moneys deposited in the said accounts belong to the appellant is not supported by sufficient evidence for the following reasons: (a) The appeal in respect of NKIL has been disposed of by the undersigned as per order dt. 16th Jan., 2001 while appeal in respect of NKPL has been disposed of by the undersigned as per order dt, 21st Jan., 2002. For the sake of convenience, the various contents and facts relating to the statements and evidences discussed by the AO in the block assessment order of the appellant, are not discussed again. The same have been elaborately discussed therein. In the case of Sejal Enterprises, addition of Rs. 1,26,48,060 was upheld on account of bogus purchases in the case of NKIL whereas finding was given that, in respect of Somnath Industries and Krishna Marketing, there was no material for considering the additions under Section 158BC, in the absence of any material discovered during the course of search. Similarly, in respect of bogus purchases relating to Vimal Industries, Karnavati Industries, Adinath Corporation, Tirupati Corporation, Krishna Industries totalling Rs. 11,99,07,754 was upheld in the orders of NKPL as discussed above. It was noted that the said payments originated in the books of NKIL and NKPL and were through cheque payments and the transactions have been duly reflected in the books of NKIL and NKPL. Thus, the source of the said deposits stands established.

(b) In respect of deposits of Rs. 21,89,82,084, the amount is stated to be received from outsiders i.e. other than NKIL and NKPL. The AO has not brought any evidence in this respect that the appellant was benamidar of such parties. As a matter of fact, even the names of parties from whom such amounts have been received and deposited in the said bank accounts have not been discussed anywhere in the assessment order. The only reference made by the AO is at p. 39 of the order in the case of NKIL and at p. 35 of the order in the case of NKPL, in which the AO had observed that inquiries will be made in respect of those concerns and substantive addition made in those cases. In view of these facts, there is no justification for treating the same as undisclosed income of the appellant and that too without any finding or supporting evidence emerging out of search action under Section 132 in the case of appellant.

(c) In respect of the amount of Rs. 3,64,01,316 as stated in the written submissions before me, the amount is represented towards sale by NKPL and the transactions are duly recorded in the books of account. There is no finding that the source of the same is the appellant or that it is based on any material discovered as a result of search.

(d) The appellant has strongly submitted that the transactions between the account holders and the appellant are only in the capacity of his being MD of NKIL and NKPL and that he has never done any business in his individual capacity. It is further submitted that no adverse inference can be drawn for mere introduction to the proprietor of the concern for opening a bank account. Reliance is placed on the decision of Tribunal, Ahmedabad in the case of Dimco Silk Mills v. ITO (supra) which is relied upon as mentioned earlier in this order. It is submitted that the onus is on the AO to hold that the said deposits are on account of undisclosed income of the appellant and this view is correct in view of the decision of the Supreme Court in the case of CIT v. Daulatram Rawatmal (supra).

(e) It is further submitted that as discussed by the AO himself in the orders of NKIL and NKPL, no cheque books were found from the residential premises of the appellant in respect of any of the above account holders relating to the abovementioned concerns. This is found to be correct since the same were found from the residence of Kamleshbhai Patel. As such, addition made by the AO of Rs. 37,19,85,062 cannot be sustained and therefore directed to be deleted." 89. The CIT(A) gave the following findings in relation to this ground raised in the Revenue's appeal in the case of NKPL in para 7.4 on pp.

23 and 24 of his order: "7.4 I have considered the submissions made and also perused the facts. It is noted that the AO has treated the total of deposits appearing in the bank accounts of the said 5 parties pointed out by the appellant in para 3.2 of the submissions. It is submitted that purchases from the appellant recorded only for Rs. 11.99 crores and the rest is from the outside parties for which no findings have been given by the AO. In respect of the amount of Rs. 3,64,01,316, no finding has been given by the AO and the transaction has already been considered in the case of NKIL. It is noted that the contention of the appellant are correct and the appeal of NKIL bearing Appeal No. CIT(A)-VI (now III)/CC2/54/01-02 has already been disposed of as per order dt. 16th Jan., 2002. After perusing the points made by the appellant, I find that there is no justification in making double addition first by way of treating the same as bogus purchases and than considering the same as unexplained deposits in the bank accounts of the proprietors/concerns. It is relevant to note that it is observed by the AO that withdrawals made relating to purchases of NKPL have been used by the appellant itself.

7.5 In view of the above facts, I do not see any justification in making further addition on the basis of deposits in the said accounts without any basis. The addition made on this account on protective basis, therefore, cannot be sustained and directed to be deleted." 90. The CIT(A) in the case of NKIL has considered this issue in para 6 to 6.2 on pp. 12 to 14 of his order as under: "6. This relates to addition of Rs. 5,71,71,630 in respect of deposits in the bank account of the said suppliers and Rs. 91,47,866 on account of undisclosed deposits in the said bank account. This has been discussed and referred by the appellant in para 2.2 of its written submissions reproduced above. The said additions have been made on protective basis. It is pleaded by the appellant in the written submissions as per para 10 as under: "10, Unaccounted payment of Rs. 5.71 crores (para 13page No. 38 and 39): 10.1 The learned AO has made addition of Rs. 5.71 crores as unaccounted payments.

10.2 The assessee made purchases which is considered as bogus and the assessee also made payment for such purchases by cheques. The learned AO obtained bank statement of the said suppliers and the total deposits made in the said accounts by the assessee-company and outsiders are considered as payment made by the assessee-company and is also considered as unaccounted payments. Therefore, the learned AO has made addition of Rs. 5.71 crores as unaccounted payments on protective basis. The details of such unaccounted payments and purchases are given below: Purchases considered as bogus in the case of NKIL: Rs. The details of deposit of cheques in the bank account from the above referred companies and outsiders are as under: 10.3 From the above, it may please be seen that the total deposits from the accounts is Rs. 5.71 crores whereas the total purchases from the three concerns are Rs. 2.92 crores. In other words, the said concerns are also dealing with outsiders which proves that the said concerns are not benamidar. Even the payment by the outsiders are considered payment made by the company without any basis and evidences. Further, the payment for purchases is by cheques and they are reflected in the accounts regularly maintained by the company and, therefore, such payment for purchases is accounted payment and cannot be considered as unaccounted payments.

10.4 Even if it is considered as unaccounted payment, the addition is already made for purchases and, therefore, there is no question of making for further addition for unaccounted payments, if so made, it is double addition.

10.5 The protective assessment is normally made, if the Department is in doubt about the person in whose hands the income is taxable.

The learned AO has also stated that the inquiries would be made in the hands of the said suppliers and, therefore, the substantive addition would be made in the hands of the suppliers. Now, the said concerns are treated as benamidar and the deposits in the accounts of suppliers of NKIL and NKPL is treated as undisclosed income in the case of Nilesh K. Patel and therefore, the question of treating any such payments as unaccounted in the case of NKIL even on protective basis does not arise." 6.1 Similarly, in respect of addition of Rs. 91.47 lakhs, it has been submitted as under as per para 11 of the written submissions as under: 11.1 The learned AO has made addition of Rs. 91.47 lakhs as unexplained deposit since it is argued that the company has made such deposits in the account of Sejal Enterprises. In other words, Sejal Enterprises is treated as benamidar of NKIL. There is no evidence whatsoever adduced by the learned AO for holding Sejal Enterprises as benamidar of the company. In fact, the company has made deposit since it is argued that the company has made such deposits in the account of Sejal Enterprises.

11.2 In other words, Sejal Enterprises is treated as benamidar of NKIL. There is no evidence whatsoever adduced by the learned AO for holding Sejal Enterprises as benamidar of the company. In fact, the company has made purchases from Sejal Enterprises to the extent of Rs. 1,26,48,060 and such purchases are considered as bogus and the addition is already made in the case of NKIL which is being contested. Therefore, the question of making any addition as unexplained deposit in the case of assessee-company does not arise." 6.2 I have carefully considered the same and in view of my findings given in respect of Krishna Marketing and Somnath Industries, there is no justification for treating the same as income of the appellant in the block assessment. In respect of the addition of Rs. 91,47,866, addition of Rs. 1,26,48,060 has already been confirmed and there is no basis for making further addition in the absence of any additional evidence that the same is co-related with purchases out of unexplained monies. This would amount to double taxation. In view of the above facts, these 2 additions are directed to be deleted." 91. The learned Senior Departmental Representative relied upon the reasons mentioned in the assessment orders. The Bench persistently required the learned Senior Departmental Representative to furnish the details of inquiries made subsequent to the completion of these assessments, as indicated in the assessment order of NKIL and NKPL that inquiries will be made as to which other concerns have given cheques to these billing agents/name lenders which have been deposited in their bank accounts and additions on substantive basis will be made after completing those inquiries in the cases of such other concerns who gave those cheques. The learned Senior Departmental Representative submitted a letter dt. 18th Dec., 2002. The relevant extracts of the said letter are reproduced as below: "As directed during the course of hearing by your honour, I am submitting herewith details of bank enquiries carried out in the group cases of N.K. concerns. It is submitted that there are large number of cheques and banks are involved due to which enquiries have not conducted yet. There are practical difficulties also due to which enquiries have not reached its conclusion. Kindly see the page No. 6 of the enclosure which is the reply from the Mehsana Urban Co-op. Bank Ltd. The bank has submitted as follows: "You are requested to note that we present all our bank clearing in computerised floppy and maintain our all records in computers. You are requested to note that we have the record of the name of the branch through which the instruments were presented by our bank.

Moreover, all original instruments are presented to the concerned branch of the bank. Therefore it is not possible to furnish the data as per your requirements." 2. Page No. 40 to 49 all the details furnished by the Mehsana Urban Co-op. Bank Ltd. In the details filed by the bank, the cheque number and name of the bank mentioned. They have not mentioned the branch of the bank. Kindly see the page No. 39 wherein the reply the bank has written that we don't have records of the bank branch from which these instruments were presented. Kindly see the page No. 1 in which Co-operative Bank of Ahmedabad Ltd. has stated that the cheque No. 44156 as mentioned is not clear from this branch and so we are unable to furnish further details as required by you. The Kalupur Commercial Co-op. Bank Ltd. has stated as appeared at page No. 4 that furnish the name of the company under N.K. group and the date of clearance of cheque. On page No. 50, the Sabarmati Co-op. Bank Ltd. has stated due to shifting process our records related to our branch we are unable to submit all such data in time.

3. Kindly see the page No. 20 of which the bank has given a/c No. 4002, this bank a/c is in the name of Swastik Overseas Ltd. From the bank a/c opening found which is on page No. 37, it is seen that this a/c is introduced by N.K. Industries Ltd. Kindly see page No. 34 which is the account opening form of Issan Overseas Ltd. This account is also introduced by N.K. Industries Ltd. 4. Kindly see the page No. 38 in which the Mehsana Urban Co-op. Bank Ltd. has stated that as per statement of a/c of Adinath Corporation a/c No. 531 of credit entries by transfer in the period from 17th April, 1998 to 7th July, 1998 from N.K. Proteins Ltd. Ahmedabad." 92. The various correspondence exchanged by the AO with the concerned banks are only upto May, 2001, The learned Senior Departmental Representative submitted that in view of the difficulties indicated in the aforesaid letters, it has not been possible to conduct further enquiries. In reply to a specific query from the Bench, the learned Senior Departmental Representative candidly admitted that no further enquiries were made after May, 2001. The Department has also not produced any evidence to show that they conducted any further investigation to find out as to which other parties have given cheques to these bogus suppliers in whose bank accounts such cheques aggregating to several crores of rupees have been deposited.

Our attention has been invited towards bank account opening form in respect of account No. 4002 in the name of Swastik Overseas Ltd. placed at p. 37 of the documents submitted along with the letter dt. 18th Dec., 2002. This account was introduced by N.K. Industries. The persons authorised to operate the bank account in the name of Swastik Overseas Ltd. is Shri R.B. Mehta and one other Mehta. The learned Senior Departmental Representative was requested to show the photo copy of the statement of Rajesh Mehta-broker with a view to find out whether the signature on this bank account opening form tallies with the signature of the said broker. It was found that signature on this bank account opening form appears to be of the same person viz. Shri Rajesh Mehta-broker. The Bench required the learned Senior Departmental Representative to state as to whether Shri Rajesh Mehta-broker has been interrogated in relation to transactions carried out in the name of Swastik Overseas Ltd. The learned Senior Departmental Representative admitted that no such interrogation of Shri Rajesh Mehta was made. The extracts from the statement of Shri Rajesh Mehta reproduced on p. 10 of the assessment order in the case of NKPL shows that not a single question was put by the AO or Addl. DIT to Shri Rajesh Mehta about Swastik Overseas Ltd. 93. Likewise, the learned Senior Departmental Representative has also drawn our attention to the bank account opening form of Issan Overseas Ltd. placed at p. 34 of the said paper book. One of the persons authorised to operate the bank account on behalf of Issan Overseas Ltd. is Shri Rajesh Mehta, the same person who claimed to have acted as broker on behalf of the assessee. Not a single question was put to Shri Rajesh Mehta-broker in the said statement reproduced at p. 10 of the assessment order in the case of NKPL and at p. 9 of the assessment order in the case of NKIL. There is no discussion about any transaction carried out by the assessee with Swastik Overseas Ltd. and Issan Overseas Ltd. in the assessment order. Copy of bank account of Tirupati Corporation submitted at p. 20 of the said submissions by the Department shows that the cheques given by M/s Swastik Overseas and Issan Overseas were also deposited in the bank account of Tirupati Corporation. No evidence has been brought on record to show that Swastik Overseas and Issan Overseas were benamidars of the assessee or cheques given by Swastik/Issan Overseas came out of the funds belonging to the persons or concerns of NK group. These cheques of Swastik/Issan Overseas constitute a small figure of about Rs. 10 lakhs which is a small fraction of the total deposits aggregating to more than Rs. 44 crores deposited in the bank accounts of such bogus suppliers/name lenders/billing agents. The Department has not even examined the partners/proprietors/directors of Swastik Overseas Ltd. and Issan Overseas Ltd. The Department has not made any serious efforts to find out the complete names, addresses of various other concerns which gave cheques to all these bogus suppliers, which have been credited in their respective bank accounts. The concerned IT authorities having vast powers vested upon them under the provisions of the Act could very easily obtain complete details of all the persons who gave these cheques to these bogus suppliers. They could also find out various withdrawals made from these bank accounts of various bogus suppliers and ascertain the destination of those amounts withdrawn by various cheques other than self cheques debited in those bank accounts. No serious efforts have been made for finding out the complete particulars of various debits and credits in the bank accounts of all such bogus suppliers except locating details of cheques given by NKPL and NKIL as per books of accounts of these two concerns. The learned Senior Departmental Representative simply relied upon the reasons mentioned in the assessment orders to support such a ground raised in all the aforesaid three appeals by the Revenue; one in the case of NKPL; NKIL and Shri Nileshbhai K. Patel. The learned Senior Departmental Representative also drew our attention to letter dt. 23rd May, 2001 sent by Madhavpura Mercantile Co-op. Bank Ltd. to the AO informing them that cheque No. 162824 and 162854 were issued by M/s Madhukant Agrotech (P) Ltd. in favour of Karnavati Industries. Copy of current account card was also annexed with this letter which shows details of a/c No.362 in the name of M/s Madhukant Agrotech (P) Ltd. The address of M/s Madhukant Agrotech (P) Ltd. as given in the account opening form is as under: 94. The persons authorised to operate the said bank account are Shri Kiritbhai K. Shah and Shri Maulik K, Shah. The account was introduced by Giriraj Trading Co., Girishkumar K. Shah-HUF. Copy of resolution passed for opening of the said bank account by Madhukant Agrotech (P) Ltd. was also supplied by the said bankers to the AO. The Bench required the learned Senior Departmental Representative to state as to whether any further investigation was made from M/s Madhukant Agrotech (P) Ltd. to show as to whether they had any direct or indirect connection with any of the persons or concerns of N.K. Group. The learned Senior Departmental Representative admitted that no further enquiries were made from Madhukant Agrotech (P) Ltd. The learned Senior Departmental Representative also tried to explain that the bankers have indicated that they did not have the records of bank branches from which various instruments relating to such bank accounts were presented. For example, attention was invited towards letter dt. 20th March, 2001 of Mehsana Urban Co-op. Bank Ltd. p. 39 of this paper book in which they have indicated that the AO should contact service branch/head office of respective banks for the required details.

However all these inquiries continued only upto May, 2001. The assessment in the case of NKPL and NKIL were made on 30th April, 2001.

The assessment in the case of Nileshbhai Patel was completed on 28th Feb., 2001. No effective efforts were made by the officers of the Department for further investigation in this regard. The AO on p. 35 in the case of NKPL and on p. 39 of the assessment order in the case of NKIL has observed that the inquiries are being conducted from the banks to find out the names and particulars of other, concerns which made these payments for purchases and other expenses. Substantive disallowances will be made in the cases of those concerns after conclusion of enquiries. The additions were protectively made in the cases of NKIL and NKPL subject to further investigation so that appropriate additions can be made in the hands of the concerns who gave such cheques to these bogus suppliers. However, no further inquiries have been made and no additions have been made in the cases of any such other concerns who really gave cheques to these bogus suppliers.

95. The learned counsel appearing for the assessee submitted that the results of search conducted on all the persons and concerns belonging to this group show that no unaccounted money, bullion, jewellery, stock or any other valuable assets were found from any of the persons or concerns except meagre quantity of jewellery and cash etc. The unexplained jewellery was disclosed by the assessees of this group in the block return which have been accepted by the Department, The addition made on account of unexplained cash in the hands of different persons of this group was made by the AO but same was deleted by the CIT(A) and no further appeal has been preferred by the Revenue in relation to such deletion. This clearly proves that the assessee, did not own any other unaccounted assets or deposits whatsoever. The learned counsel contended that no addition could be validly made in the hands of Shri Nilesh K. Patel as he was not carrying on any personal business. The entire evidence which contains reference of his name is in his capacity as MD/director in NKPL and NKIL. There is no material or evidence on record that any funds were provided by Shri Nileshbhai Patel for deposits in all or any of these bank accounts. Shri Nileshbhai Patel had no transactions with any of these suppliers. Mere introduction of some bank accounts cannot lead to the conclusion that the assessee were the real owners of the amounts credited in the bank accounts of such suppliers particularly when all such credits in the bank accounts of those suppliers are by way of cheques deposited in these accounts. Such cheques other than cheques given by NKPL and NKIL towards purchase invoices were given by outside parties/third parties with whom neither Shri Nileshbhai Patel, nor NKPL nor NKIL had any connection whatsoever. The burden squarely lies upon the Revenue to prove that such cheques were deposited by these assessees. The learned counsel relied upon the judgment of the Hon'ble Supreme Court in the case of CIT v. Daulatram Rawatmal (supra); and the decision of Tribunal in the case of Parakh Foods Ltd. v. Dy. CIT (supra) and various other decisions referred to in para 4.7 of the order of CIT(A) in the case of Shri Nileshbhai Patel. The learned counsel further pointed out that no notice under Section 158BD had been issued to any other concerns who gave such cheques to these suppliers. Reliance was also placed on the decision in the case reported in 68 ITD 273 (sic). The learned counsel contended that the documents submitted along with letter dt. 18th Dec., 2002 by the learned Senior Departmental Representative further supports the assessee's contention. For example, cheques of Madhukant Agrotech (P) Ltd. were credited in the bank account of Karnavati Industries. M/s Madhukant Agrotech have no connection whatsoever with the assessee.

This strongly supports the view that Karnavati Industries, if they are treated as bogus suppliers/billing agents/name lenders, they are acting as such on behalf of other parties. Similar inference can be drawn from the bank opening forms of Swastik Overseas Ltd. and Issan Overseas Ltd. The Department ought to have examined Shri Rajesh B. Mehta and other directors/owners of those concerns to find out as to who were real persons who gave such cheques to these bogus suppliers. The learned counsel drew our attention to the copies of bank statements submitted by the learned Senior Departmental Representative along with the letter dt. 18th Dec., 2002. In those bank statements the bankers appear to have given hand-written narration such as KCC, PNB, Manekchowk, AMCO etc. The assessee had no bank account with PNB, KCC or any of these places which are hand written and which have been highlighted in the copies of those bank statements submitted by the learned Senior Departmental Representative. The Department has miserably failed to bring any evidence on record to show that any of the cheques of outside parties/third parties were in any way connected with any of the persons or concerns of N.K. Group. The learned counsel strongly supported the orders of the CIT(A) in all these three cases in relation to the aforesaid common ground.

96. We have carefully considered the submissions made by the learned representatives of the parties and have gone through the orders of the learned Departmental authorities and all other documents submitted in the compilation to which our attention was drawn during the hearing. It is evident from the facts discussed hereinbefore that the addition in respect of unexplained deposits in the bank accounts of various suppliers were made in the cases of NKPL and NKIL on protective basis with the observation that further inquiries will be made from various branches of banks to ascertain that which other concerns have given such cheques which have been deposited in the bank accounts of these bogus suppliers. It is also clear from the facts discussed above that the Department did not make any serious efforts to make effective investigation or deep further probe in this regard after completion of the assessments on 30th April, 2001. Some letters were sent to the bankers in the month of March to May, 2001 and thereafter the matter was not pursued.

97. The deposits in the bank accounts of these bogus suppliers can be validly added in the hands of any of these assessees only if the Department discharges the burden of proving that these suppliers were benamidars of any one of these three assessees of N.K. Group and the Department has to further discharge the burden of proof that the deposits in these bank accounts by way of cheques were made out of funds provided by these persons or concerns of N.K. Group. Such a burden has to be discharged by the Revenue by bringing positive and clinching evidence on record. No such evidence has been brought on record by the Department to prove that the cheques of third parties deposited in the bank accounts of these suppliers were out of funds provided by any of these three assessees. In order to prove that the bank accounts in the names of these suppliers are benami accounts or that the suppliers are benamidar persons/concerns, the following tests are very vital and significant: 98. The Department has to prove by bringing on record definite, positive and clinching evidence on all these three aspects to support their conclusion that these bank accounts are benami accounts and deposits in these bank accounts in the names of suppliers really belong to NKPL or NKIL or Shri Nileshbhai Patel and they were the persons who enjoyed these funds and the entire funds have directly or indirectly flown back in their favour. The degree of proof for proving the concept of benami bank accounts/benami persons is very stronger and that has to be discharged by bringing positive material on record. Such conclusion cannot be derived on the basis of mere suspicion and surmises. It may be relevant here to repeat once again that so far as purchases claimed to have been made by NKPL and NKIL from these concerns are concerned, the burden was on the assessees to prove genuineness of purchases but the same principle would not apply when the Department wants to treat the entire deposits in these bank accounts in the names of various suppliers as benami deposits/benami accounts of these assessees. The Hon'ble Supreme Court in the case of Daulatram Rawatmal (supra) has observed at p. 360 as under: "The onus to prove that the apparent is not the real is on the party who claims it to be so. As it was the Department which claimed that the amount of fixed deposit receipt belonged to the respondent-firm even though the receipt had been issued in the name of Biswanath, the burden lay on the Department to prove that the respondent was the owner of the amount despite the fact that the receipt was in the name of Biswanath. A simple way of discharging the onus and resolving the controversy was to trace the source and origin of the amount and find out its ultimate destination. So far as the source is concerned, there is no material on the record to show that the amount came from the coffers of the respondent-firm or that it was tendered in Burrabazar Calcutta Branch of the Central Bank, on 15th Nov., 1944, on behalf of the respondent. As regards the destination of the amount, it has already been mentioned that there is nothing to show that it went to the coffers of the respondent. On the contrary, there is positive evidence that the amount was received by Biswanath on 22nd Jan., 1946. It would thus follow that both as regards the source as well as the destination of the amount, the material on the record gives no support to the claim of the Department." 99. In the present case the Department has not even found out the names of the concerns/parties who gave cheques to these bogus suppliers aggregating to Rs. 21,89,82,084 upto the date of search and further amount deposited in their bank account even after the date of search upto the time when Dy. DIT/Addl. DIT had obtained copies of bank accounts of these suppliers from respective banks. It will be worthwhile to repeat that as per chart given in para 86 total deposits in the bank accounts of those bogus suppliers as per show-cause notice dt. 18th Jan., 2001 issued by the AO to Shri Nileshbhai Patel, was Rs. 44,43,05,403 out of which the total deposits in their bank accounts upto the date of search was only Rs. 37,19,85,062. Out of this, the payment made by NKIL and NKPL towards purchase invoices supplied by these bogus suppliers were to the tune of Rs: 14,82,49,194. In addition to this, a cheque of Rs. 3,64,01,316 was given by Triveni towards goods sold by NKPL. This left the balance deposit aggregating to Rs. 21,89,82,084 received by bogus suppliers/billing agents from other parties/third parties with which it is contended that the persons or concerns of NX Group had no connection whatsoever. The names and particulars of parties who deposited the cheques in the bank accounts of these suppliers after the search have also not been brought on record, It was primary duty of the Department to find out as to which other parties/concerns have given these cheques which have been deposited in the bank accounts of these bogus parties. The Department has completely failed to discharge such burden, which heavily lies on them to support their conclusion that any of these three assessees were real owners of cheques of all such other concerns/third parties deposited in the bank accounts of these bogus suppliers. The Department has also not made any investigation to prove destination of the funds withdrawn by self cheques and by other cheques given to other parties.

The Department has thus failed to discharge the burden of proving that the origin and destination of these funds were these assessees and none else. The CIT(A), in our view, has rightly deleted the additions so made by the AO in all these three cases under consideration.

100. We will, however, like to observe that the officers of the Department cannot leave the investigation of such an important matter in a lamentable and incomplete position like this. The Department has vast powers under Section 131(1A) or Section 133 and other relevant provisions by which they can compell the concerned banks to give them complete details of the concerns/persons whose cheques have been deposited in the bank accounts of all these bogus suppliers/billing agents/name lenders. The Department can also find out the details of amounts withdrawn from these bank accounts of bogus suppliers otherwise than by way of self cheques. The names and addresses of the parties to whom such cheques/demand drafts have been given can be obtained from the respective branch of the concerned banks. The Department can also obtain photo copies of self cheques by which the names of the persons who have withdrawn such cash can be found out by interrogation of concerned persons including bogus suppliers/concerned employees of the banks and concerned employees of the concerns of assessee group and other concerns who gave such cheques. The total deposits in the bank account of these bogus suppliers/billing agents/name lenders is more than Rs. 44 crores. The Department has only found out the details of cheques given by NKIL and NKPL which is only a small portion thereof.

The details of major credits in all these accounts have not yet been found out by the Department. It is incumbent on the part of the Department to find out complete details of all other concerns who gave such cheques to these bogus suppliers. Those other concerns might also have taken fictitious purchase invoices from these bogus suppliers.

They may not have even received the material sought to have been supplied to those other concerns through such fictitious invoices issued by such billing agents. After carrying out necessary investigation and finding out the names and addresses of other persons and concerns, whose cheques have been credited in the bank accounts of these bogus suppliers, necessary action against those concerns/persons should be initiated under Section 158BD or under Section 147 or any other relevant provisions of the IT Act. The Department cannot exonerate such "other concerns" by leaving investigation at incomplete stage like this. It would be imperative to mention that the time limit for initiating action under Section 147 has been reduced to only six years in Section 149. The time left with the officers of the Department now is very short. It is, therefore, necessary to strive the best possible time-bound programme for ascertaining the full particulars viz. names and addresses of all other concerns/parties/persons whose cheques have been deposited in the bank accounts of these bogus suppliers, so that timely action can be initiated against all such other persons/concerns/parties. If, as a result of further investigation, it comes to the notice of the Department that those other concerns/third parties are benamis of the persons and concerns of assessee's group, the Department will be entitled to take necessary action under Section 147, if they have in their possession adequate material to justify formation of reasonable belief which should be much more stronger than the reasons to suspect, If the AO comes across evidence and material which were not found or made available in the process of block assessment but are discovered as a result of post-search investigation, he can certainly use such information for making regular assessment under Section 143(3) which also includes reassessment under Section 147 subject to fulfilment of conditions precedent mentioned in the other provisions of the Act. It will be the duty of the learned Senior Departmental Representative who represented this case before us to bring this fact to the notice of the learned Chief CIT, learned CIT, and learned DG (Investigation) so that further investigation in this regard may receive serious attention, which it deserves, and timely action can be initiated against such other concerns/persons under Sections 147, 158BD or other relevant provisions.

101. Now we will deal with Ground No. (2) in Revenue's appeal in the case of NKPL [IT (SS) A No. 41/A/2002]. This ground relates to deletion of addition of Rs. 2,01,99,792 made on account of unaccounted purchase.

As already stated hereinbefore, this addition was made on the basis of invoices found in Annex. A-6 during the search. Certain sale bills issued by NKIL in respect of sales made to NKPL were found and seized during the search. These invoices were not accounted for in the books of accounts of the assessee as well in the books of NKIL. We have already dealt with this issue while dealing with the connected ground raised in this regard in assessee's appeal. After consideration of the entire relevant facts, we consider it just and proper to set aside the orders of the CIT(A) and the AO in relation to this ground and restore the matter back to the AO for conducting further probe and decide this issue in accordance with the provisions of law and after providing reasonable opportunity to the assessee.

102. Now we will deal with assessee's appeal in the case of NKIL in IT (SS) A No. 16/Ahd/2002. The assessee has raised the following grounds in this appeal: 1. The learned CIT(A) has erred in rejecting the contention that block assessment is void ab initio since the notice issued under Section 158BC does not mention the status of the assessee and does not mention correct block period and therefore the notice issued is invalid.

2.1 The learned CIT(A) has erred in holding that the purchases made from Sejal Enterprises amounting to Rs. 2,50,427 for asst. yr.

1995-96, Rs. 62,75,837 for asst. yr. 1998-99 and Rs. 61,21,796 for asst. yr. 1999-2000 amounting in all to Rs. 1,26,48,060 are bogus and thereby has erred in confirming addition of Rs. 1,26,48,060 as undisclosed income.

2.2 The appellant says and submits that the purchases of Rs. 2,50,427 for asst. yr. 1995-96 and Rs. 62,75,835 for asst. yr.

1998-99 is recorded in the books of accounts and that the income-tax return for asst. yr. 1995-96 and asst. yr. 1998-99 were submitted prior to the date of search and purchases of Rs. 61,21,796 for asst.

yr. 1999-2000 have been recorded in the normal manner in books of accounts prior to the date of search i.e. 24th Feb., 1999 and, therefore, such transactions are not considered as undisclosed income as provided in Section 158BA(3).

2.3 The appellant further says and submits that the learned CIT(A) has erred in placing reliance on finding based on inquiry made by Addl. DPT under Section 131(1A) and that the learned Dy. CIT has not made any independent inquiry and therefore, the addition made on the basis of inquiry made by learned Addl. DIT under Section 131(1A) is illegal and not warranted since the learned Addl. DIT also cannot make inquiry under Section 131(1A) after the conclusion of search.

2.4 The learned CIT(A) has erred in confirming the finding of the Dy. CIT as stated on from page No. 6 to 16 of the assessment order which is nothing but reproduction of appraisal report and that the AO has not made any independent inquiry whatsoever. The AO has relied only on the finding given by the Addl. DIT and that the AO has also not examined the supplier.

2.5 The appellant further says and submits that the learned Addl.

DIT has obtained affidavit from the proprietor of Sejal Enterprises behind the back of the assessee and that the learned Dy. CIT has placed the reliance on such affidavit.

2.6 The appellant further says and submits that the affidavit obtained by the learned Addl. DIT is similar in contents with the affidavits and statements obtained in the case of N.K. Proteins Ltd. and therefore, it appears that such affidavit is obtained under undue influence, therefore, any finding based on such affidavit cannot be relied upon.

2.7 The appellant further says and submits that the learned Dy. CIT ought to have summoned the said persons and should have found out the truth and that the opportunity to cross-examine the said persons should have been given.

2.8 The appellant further says and submits that the assessee-company has in fact, made purchases and has furnished the evidences at the time of assessment by giving the details such as date of inward, quantity received, MRS No., report No. along with the xerox copy of purchase bill, weighment slip, material inward receipt, transporter's LR, analysis report with reference to inward and stock register and that the assessee has also stated that if the purchases are ignored the production is more than the consumption of raw material. The appellant submits that the CIT(A) called for the remand report and the AO submitted remand report dt. 26th Dec., 2001 confirming the receipt of material and the consumption thereof and about the yield. However, the learned CIT(A) has ignored the facts of the material received and ignored the remand report and submissions of the assessee.

2.9 The appellant further says and submits that the purchases were at the market rate which is confirmed by the learned Dy. CIT in the remand report dt. 26th Dec., 2001 and therefore, it is clear that the purchases were not made to deflate the profit.

2.10 The appellant further says and submits that the assessee-company has made the payment of the entire purchases by cheques to the suppliers which is not disputed.

3. The learned CIT(A) has erred in placing reliance on finding given by Addl. DIT in his appraisal report and has erred in ignoring the other submissions regarding factum of purchases and regarding the recording of purchases in the books of accounts in the normal manner.

4.1 The learned CIT(A) has erred in confirming the addition of Rs. 2,01,99,793 being alleged sales made by the company inasmuch as the transaction have never taken place.

4.2 The appellant further says and submits that, alternatively, only profit of the sales amount can be taxed and not the entire gross amount.

5.1 The learned CIT(A) has erred in confirming the addition to the extent of Rs. 19 lakhs as unaccounted deposit with Pari L T Shroff inasmuch as no evidences were adduced by the learned Dy. CIT as undisclosed income of the appellant.

5.2 The appellant further says and submits that the disclosure under VDIS Scheme was made by the appellant on the basis of the notice issued by the Department. Now, Department cannot change the stand and is permitted to state that the amount was more than disclosed under VDIS Scheme.

6.1 The order of block assessment is bad in law and illegal inasmuch as the approval of Jt, CIT is granted under Section 158BG without giving any opportunity to the assessee of being heard. The power to grant approval is quasi-judicial and not administrative and therefore, there has to be a judicial approach on entire facts, material and evidence (Kirtilal Kalidas & Co. (1999) 64 TTJ (Mad) 77 : (1998) 67 ITD 573 (Mad). The Jt. CIT has a supervisory role and therefore, approval granted is administrative in nature in the normal course but in block assessment in Chapter XIV-B a specific provision is made under Section 158BG for granting approval. It means that the power is quasi-judicial and not of administrative nature.

6.2 The appellant says and submits that the approval granted by the Jt. CIT appears to be mechanical without application of mind inasmuch as the approval is granted on 30th April, 2001, i.e., date of passing of the order and the date of service of the order.

8. The proceedings under Section 271(1)(c) r/w Section 158BFA(2) is wrongly initiated.

103. Ground No. 1 raised in this appeal is similar to ground No. 1 raised in the appeal of NKPL. The facts are similar. In view of the reasons given in our order in the case of NKPL in relation to this ground, we hold that this ground is devoid of any merit and is accordingly rejected.

104. Ground No. 2 relates to confirmation of addition of bogus purchases made from Sejal Enterprises amounting to Rs. 2,50,427 for asst. yr. 1995-96, Rs. 62,75,837 for asst. yr. 1998-99 and Rs. 61,21,796 for asst, yr. 1999-2000 amounting in all to Rs. 1,26,48,060.

Ground Nos. 2.1 to 2.10 and Ground No. 3 relating to the aforesaid additions of Rs. 1,26,48,060 made in respect of bogus purchases are almost similar as raised in Ground Nos. 2.1 to 2.10 and Ground No. 3, in the case of NKPL relating to addition of Rs. 11.99 crores made in respect of bogus purchases in that case.

105. The Revenue has raised the ground relating to deletion of the disallowance of Rs. 1,66,45,228 made by the AO on account of bogus purchases. It will be appropriate to deal with Ground Nos. 2 and 3 of assessee's appeal along with Ground No. 1 of appeal filed by the Revenue in the case of NKIL (IT (SS) A No. 38/Ahd/2002), all of which deal with the issue relating to bogus purchases made from bogus suppliers. The AO made an addition of Rs. 2,92,93,288 in respect of purchases made from the following three alleged bogus suppliers :Name of Suppliers Asst. yr.

Amount (Rs.)Sejal Enterprises 1995-96 2,50,427 1998-99 62,75,837Somnath Industries 1999-2000 1,14,78,000Krishna Marketing 1999-2000 51,67,228 -------------- 106. The AO has discussed the facts relating to these bogus concerns in para 6 on pp. 6 to 16 of the assessment order. The facts pertaining to purchases made from Somnath Industries have been discussed on pp. 7 to 9 of the assessment order. The AO has observed that during the investigation, it was found that NKIL has shown purchases, inter alia, from Somnath Industries. The results of investigation revealed that this concern was owned by one Shri K.R. Soni. He was summoned under Section 131(1A) and his statement was recorded on 7th June, 1999. The relevant portion of his statement has been extracted on pp. 7 and 8 of the assessment order. Shri K.R. Soni has categorically denied having supplied any such material. He admitted that he was signing bill books, blank cheque books, application for registration of sales-tax in the name of Somnath Industries at the instance of Shri Nileshbhai Patel who used to give him Rs. 2000 p.m. for all this work. The bank account of Somnath Industries was opened on 24th Aug., 1998 with initial deposit of Rs. 1,000 in cash. It has been closed on 12th May, 1999. One more bank account of Somnath Industries was also opened. The total amount of deposit in these two bank accounts upto the date of search was Rs. 2,24,57,568 as mentioned on p. 9 of the assessment order. The AO has also observed that in almost all cases, the deposits and withdrawals are on the same day. The AO on the basis of aforesaid evidence gave similar findings that Somnath Industries is fictitious entity and purchases shown by NKIL from them represented bogus purchases. The findings so given are recorded on p. 9 of the assessment order.

107. The facts relating to Krishna Marketing have been discussed on pp.

9 and 10 of the assessment order. They opened their bank account on 18th June, 1998 with Sabarmati Co-op. Bank Ltd. on 18th June, 1998 with initial deposit of Rs. 1,100, The proprietor of this concern is Shri Rajesh P. Doshi. The nature of this bank account is exactly similar to the other bank accounts of other alleged bogus suppliers. The address given by Shri R.P. Doshi to the bank was also fictitious. Shri R.P.Doshi filed an affidavit before the IT authorities in which it was stated by him that the whole business is controlled by Shri Nileshbhai Patel who is the main person handling all the day-to-day activities of the assessee-company. The AO arrived at similar conclusion in relation to purchases shown to have been made by NKIL from this fictitious entity.

108. The facts relating to Sejal Enterprises have been discussed by the AO on pp. 10 and 11 of the assessment order. The summons were issued to proprietor of Sejal Enterprises on the address given to the bank but those were returned back as the party was not available at the given address. The AO observed that the facts in the case of Sejal Enterprises are similar and he treated these purchases shown to have been made from Sejal Enterprises as also bogus purchases.

109. The AO thereafter gave a notice dt. 4th Dec., 2000 in which entire material gathered behind back of the assessee in relation to such bogus purchases was supplied and the assessee was required to explain as to why purchases made from these concerns should not be disallowed. The assessee filed reply dt. 15th Dec., 2000 stating that the entire purchases are recorded in the books of accounts in the normal course before the date of search and therefore it does not fall within the purview of block assessment. The AO has thereafter discussed the various show-cause notices given by him and the replies received from the assessee in this regard. The show-cause notices and the replies were also almost as that in the case of NKPL. The AO arrived at the conclusion that all such purchases made from these three parties are bogus purchases and he disallowed the total purchases of Rs. 2,92,93,288 made from them.

110. The learned CIT(A) has dealt with this issue in para 5 on pp. 4 to 11 of his order. The CIT(A) has observed in para 5.5 of his order that except 2 blank sale bills in respect of Sejal Enterprises appearing at Annex. A-88/2 and A/88/5, no other blank bill or voucher was found during the course of search. The CIT(A) asked the AO to verify this fact vide letter dt. 4th Jan., 2002. The AO in reply to the said letter submitted that no blank bills or cheques were found and seized in respect of M/s Somnath Industries and Krishna Marketing. The CIT(A) following the judgment of the Hon'ble Gujarat High Court in the case of N.R. Paper & Boards (supra) and also the fact that no statement under Section 132(4) during the search in respect of these purchases was recorded, he deleted the addition made by the AO in respect of purchases made from Somnath Industries and Krishna Marketing amounting to Rs. 1,14,78,000 and Rs. 51,67,228 respectively. The CIT(A) however confirmed the addition in respect of purchases of Rs. 1,26,48,060 made from Sejal Enterprises. The CIT(A) has observed that two blank bills of Sejal Enterprises were found during the search. The AO issued summons at the address given on the said bills but the same were returned back.

The entire deposits made in the bank account of this concern was by way of transfer entries from the appellant and moneys were immediately withdrawn from the said bank account. The CIT(A) also relied upon the judgment of the Hon'ble Delhi High Court in the case reported in CIT v.La Medica (2001) 250 ITR 575 (Del). The CIT(A) also observed that since no affidavit has been submitted in respect of Sejal Enterprises, the submissions made relating to affidavit of other parties are not relevant. It is also found from the orders of the AO and the CIT(A) that the assessee had, inter alia, submitted the affidavit of Shri Kaushik R. Surti, proprietor, M/s Somnath Industries. The AO has rejected the said affidavit as the signature thereon did not tally with the signature on his affidavit filed before the Dy. DIT.111. The learned counsel made oral arguments and also submitted written arguments with the heading "notes". The submissions made by the learned counsel are almost similar as were made in the case of NKPL. Reliance has been placed on similar set of judgments in this case also. It has been argued that even if it is assumed that these concerns were bogus concerns, so far as the assessee is concerned, the material was actually received. The receipt of material is supported by seized records. This has also been confirmed by the AO in the remand report submitted before the CIT(A). On the strength of similar arguments as were made in the case of NKPL, the learned counsel contended that the addition of Rs. 1,26,48,060 in respect of purchases made from Sejal Enterprises should be deleted.

112. On the other hand, the learned senior Departmental Representative relied upon similar arguments and contended that all these three parties are bogus parties. They had no capacity to supply raw material of such large magnitude. The bank accounts were opened and operated in similar manner as in the case of NKPL.

113. During the course of hearing, the Bench specifically required the assessee to produce all these three parties along with their records.

The learned counsel contended that the assessee cannot produce them along with their records as they are not under the control of the assessee. The assessee has thus refused to produce these three suppliers along with their relevant records before the Tribunal inspite of specific opportunity granted to them.

114. We have carefully considered the submissions made by the learned representatives. In our view, the order passed by the learned CIT(A) deleting the addition of Rs. 1,14,78,000 and Rs. 51,67,228 in respect of purchases made from Somnath Industries and Krishna Marketing, is not justified, The CIT(A) relying upon the judgment of the Hon'ble Gujarat High Court in the case of N.R. Paper & Boards (supra) has agreed with the assessee's contention that so far as purchases from these two concerns are concerned, they cannot be considered in the block assessment under Chapter XIV-B for the block period because no documents relating to those two parties were found during the course of search. The judgment of the Hon'ble Gujarat High Court in the case of N.R. Paper & Boards has been read by the CIT(A) out of context. We have already discussed this issue while dealing with the similar grounds in the case of NKPL. The judgment of the Hon'ble Gujarat High Court in the case of N.R. Paper and Boards if read in the light of context and the question decided by the Hon'ble Gujarat High Court, it would be amply clear that the ratio of the Hon'ble Gujarat High Court laid down in those cases does not in any manner support the view so taken by the CIT(A). The basic facts that the concerns of N.K. Group viz. NKPL and NKIL are resorting to the device of obtaining fictitious purchase invoices from the bogus suppliers came to the knowledge of the authorised officers, Dy. DIT/Addl. DIT as a result of search. The result of search clearly demonstrated that the assesses is claiming deduction in respect of inflated purchases, by debiting bogus purchases or may be by inflating the purchase price by obtaining the purchase invoices from name lenders/billing agents. It may also be relevant here to once again refer to the amended definition "undisclosed income" given in Section 158B(b) which, inter aha, includes any expenses, deduction or allowance claimed under this Act, which is found to be false. This detection of falsity of purchases made from all these parties was made by the Department only as a result of search. If search would not have been conducted, the Department would have never come to know of such a device adopted by the assessee. We are therefore of the considered opinion that the order passed by the CIT(A) of deleting such additions is not valid and justified on the facts of the present case. Various other facts and circumstances relating to all the three parties viz. Somnath Industries, Krishna Marketing and Sejal Enterprises are similar as that in the case of NKPL in relation to purchases of Rs. 11.99 crores made by them from various such bogus suppliers. The facts and circumstances are absolutely similar.

115. In view of the aforesaid facts and circumstances, we hold that all the three parties from whom the assessee claimed to have purchased material to the tune of Rs. 2.92 crores are merely name lenders/billing agents and the sale invoices issued by them in the name of NKIL are fictitious invoices. The burden lies on the assessee to support any claim for deduction made by them. In the present case such burden should have been discharged by the assessee only by producing those three suppliers along with their records so that the genuineness of their purchases, sales, financial capacity and all other relevant facts could be examined. The assessee has not produced them before the AO. We gave a specific opportunity to the assessee to produce all of them before the Tribunal along with their records. The assessee has expressed their inability to produce them before the Tribunal. However, it is also true that the receipt of material shown to have been purchased from these three parties had really been received as per facts and evidence brought on record, which are similar as in the case of NKPL.

116. It may also be relevant here to mention that the Bench required the learned Senior Departmental Representative to submit a peak statement in relation to the amounts of these three parties. The learned Senior Departmental Representative submitted copies of those statements which show that the transactions in the accounts of Somnath Industries cover the period from 26th Aug., 1998 to 1st Jan., 1999. The peak credit in these accounts as on 27th Sept., 1998 was Rs. 47,33,270.

The peak credits in the accounts of Krishna Marketing covers period from 27th Aug., 1998 to 22nd Sept., 1998. The peak credit in this account as on 10th Sept., 1998 was Rs. 33,26,780, the entries in the account of Sejal Enterprises covers the period from 19th Dec., 1997 to 13th Nov., 1998 in the aforesaid peak statement submitted by the Department. The peak balance in this account is Rs. 11,77,456 as on 1st May, 1998. These figures have been given just with a view to show that credit purchases were shown as having been made from these billing agents/name lenders to aforesaid extent which proves that the assessee used black money for purchase of raw material from undisclosed sources which are within the exclusive knowledge of the assessee.

117. On a careful consideration of the entire relevant facts, we are of the view that it would be just and proper to direct the AO to restrict the addition in respect of undisclosed income relating to purchases shown as having been made from these three billing agents/name lenders, to only 25 per cent of total purchases claimed to have been made from these three parties i.e. 25 per cent of Rs. 2,92,93,288 which comes to Rs. 73,23,322. The basis of adopting 25 per cent of such purchases is same as discussed in detail while upholding the addition of 25 per cent in the case of NKPL in relation to similar grounds.

118. Ground Nos. 4.1 and 4.2 relate to confirmation of the addition of Rs. 2,01,99,793 being alleged sales, made by NKIL to NKPL. The learned counsel made similar arguments as were made in the case of NKPL while dealing with this very point in the case of NKPL. He submitted that NKIL has not sold any goods to NKPL which are reflected in sale invoices seized during the course of search which are part of Annex.

A-6. The learned counsel contended that the seized bills represent transactions which did not take place. The cancellation of transactions is supported by board's resolution. No entries of inward and outward were made in the seized records of NKPL and NKIL. The addition is made on the basis of suspicion and conjectures without any evidence. The sale bill is for wash cotton seed oil whereas the assessee manufactures castor seed oil. In the alternative the learned counsel submitted that even if it is presumed to be unaccounted sales, only profit on sale can be added and not the entire amount of sales. Reliance was placed on the judgment of the Hon'ble Gujarat High Court reported in Ashok Mfg. Co.

(P) Ltd. v. CIT. The learned Senior Departmental Representative made similar submissions as were made in the case of NKPL.

119. We have considered the submissions made by the learned representatives of the parties. This point is similar as that raised in the appeal of NKPL vide Ground No. 4 and in the appeal filed by Revenue in the case of NKPL vide Ground No. 2. After consideration of the entire relevant facts and material, we have restored this issue back in the case of NKPL. Since the matter requires further probe and investigation, it is considered necessary to set aside the orders of the CIT(A) and the AO in relation to this point and the matter is restored back to the AO for conducting further complete deep probe and investigation as indicated while dealing with the similar grounds in the case of NKPL. The AO will pass fresh order in accordance with the provisions of law and after providing reasonable opportunity to the assessee.

120. Ground Nos. 5.1 and 5.2 relate to confirmation of addition to the extent of Rs. 19 lakhs as unaccounted deposits with Pari L.T. Shroff.

This point has been discussed by the AO on pp. 19 to 21 of the assessment order. The AO has observed that the search and seizure action under Section 132 of the Act was undertaken in the case of M/s L.T. Shroff and its group concerns in the month of August, 1996, Prior to that search, search and seizure action was also undertaken at the, Bombay Office of M/s L.T. Shroff by FERA officials in May, 1995. During the search and seizure action, FERA officials had seized a diary which contains details of unaccounted cash transactions of Bombay office of M/s L.T. Shroff. The statement of one Shri Kalpesh L. Thakkar, son of Shri L.T. Thakkar was recorded under Section 132(4) on 3rd Aug., 1996.

In this said statement he identified NKIL and admitted that the figures written in the said diary have been written after removing three zeros from actual figures. That means, if 475 is written in the diary, it actually means Rs. 4,75,000. It was also admitted by Shri K.L. Thakkar that the entire transactions noted in this diary were in cash and were not reflected in the regular books of account. He further stated that one Shri Mahendra Barot, broker of N.K. group of concerns, was depositing money on behalf of NKIL. The receipt of unaccounted money from N.K. Group has been confirmed by Shri K.L. Thakkar in the aforesaid statement. The AO has reproduced complete details of amounts deposited for and on behalf of N.K. Group with M/s L.T. Shroff as per said diary. The total deposits as per chart given on p. 20 of the assessment order was Rs. 45,09,000 and debits were Rs. 16,01,000. Apart from this, a duplicate set of books of account maintained at Manekchowk was also found during the said search at Shroff's premises. The statement of Shri Nimish Patel was recorded on 24th Feb., 1999. Shri Nimish Patel stated that his group was borrowing and lending money from/to L.T. Shroff since 1993 till 1997. In response to question No.33, he stated that the unaccounted transactions with M/s L.T. Shroff were declared under the VDIS 1997. He however failed to give details of the same and the basis of calculation of amounts offered under VDIS. It is pertinent to note that Shri Nimish Patel had accepted having unaccounted transactions with L.T. Shroff in those statements. The AO gave show-cause notice to the assessee as to why the addition in respect of unaccounted deposits revealed from the diary/documents seized from L.T. Shroff be not added in the hands of the assessee. The assessee pointed out that actual amount of unaccounted deposits as per said seized diary comes to Rs. 55,09,000. The assessee made withdrawal of Rs. 16,01,000 from L.T. Shroff. After giving benefit of this unaccounted withdrawal, the net unaccounted deposits come to Rs. 39,08,000. The assessee made a disclosure of Rs. 20,08,000 under VDIS.Copy of certificate received from CIT and application was furnished.

The AO did not accept the assessee's claim for deduction of Rs. 20,08,000 and made the addition of Rs. 39,08,000 as unaccounted investment of assessee for asst. yr. 1995-96 in the block assessment.

121. The learned CIT(A) has dealt with this issue in para 9 on pp. 18 to 21 of his order. It was pointed out by the assessee before the learned Departmental authorities that the appellant-company received a notice dt. 10th Dec., 1997 from Asstt. CIT Central Circle, wherein it was stated that there is a credit transfer of Rs. 36.09 lakhs and debit transfer of Rs. 16.01 in the diary seized from L.T. Shroff. The assessee made a disclosure in respect of receivables/credit transfer and debit transfer with L.T. Shroff to the tune of Rs. 20,08,000 on the basis of the said letter sent by Asstt. CIT. The CIT(A) after taking into consideration the entire relevant facts observed that in the application for disclosure made under VDIS, it was disclosed that such disclosure relates to amount receivable from L.T. Shroff whereas in the certificate issued by the CIT the word "receivables" only has been used. This cannot deprive the appellant from getting the benefit of the amount already disclosed under VDIS in this regard. The CIT(A) therefore granted relief of Rs. 20,08,000 and confirmed the addition of balance amount of Rs. 19 lakhs for which no evidence was given by the assessee.

122. The assessee is in appeal against confirmation of the said sum of Rs. 19 lakhs, which is subject-matter of consideration in Ground Nos.

5.1 and 5.2 of assessee's appeal. The Revenue has also raised one of the grounds viz. Ground No. 4 relating to deletion of the addition of Rs. 20,08,000 made on account of unexplained credit with. L.T. Shroff.

Both these grounds viz. Ground Nos. 5.1 and 5.2 of assessee's appeal and Ground No. 4 of Revenue's appeal in the case of NKIL are dealt with together.

123. The learned counsel appearing on behalf of the assessee drew our attention to copy of notice dt. 10th Nov., 1997 issued by Asstt. CIT to N.K. Oil and Nileshbhai under Section 131 along with its annexures.

This letter is accompanied by details of amounts appearing as "credit transfer" in the name of N.K. Oil Industries Ltd. in the diary found and seized during the above searches. The list enclosed with this notice gives details of 29 credit transfer entries covering period from 23rd Nov., 1994 to 27th March, 1995. The total thereof comes to Rs. 36,09,000. Below the said details of deposits, there are two entries of withdrawals aggregating to Rs. 16,01,000. The learned counsel contended that the amount was offered for tax under VDIS on the basis of aforesaid details given by the Asstt. CIT Central Circle, Ahmedabad vide letter dt. 10th Nov., 1997. The details of payments in question reproduced at p. 20 of the assessment order comes to Rs. 45,09,000 as against the total payments mentioned in the said list annexed with the notice dt. 10th Nov., 1997 of Rs. 36,09,000. A perusal of datewise and amountwise details given along with the letter of Asstt. CIT dt. 10th Nov., 1997 and the information received by the AO from Bombay authorities from seized diary indicates that one entry of deposit of 22nd March, 1995 of Rs. 9 lakhs had not been mentioned in the list annexed with the Asstt. CIT's letter dt. 10th Nov., 1997. The learned counsel also submitted that the copies of statement of Shri K.L.

Thakkar, son of L.T. Thakkar recorded under Section 132(4) on 3rd Aug., 1996 and photo copies of the relevant seized Bombay diary have not been supplied to the assessee before placing reliance on those documents, Copy of statement of Shri Nimish Patel recorded on 24th Feb., 1999 had also not been given. The AO has erred in placing reliance on these statements recorded behind the back of the assessee. The addition of Rs. 19 lakhs confirmed by the CIT(A) is therefore patently wrong.

Reliance has been placed on the judgment of the Hon'ble Gujarat High Court in the case of (1981) 131 ITR 643 (Guj) (supra) and the decision of the Tribunal in the case of K.R. Soni v. ITO in ITA No.881/Ahd/2000, dt. 11th July, 2001. The Tribunal in the case of K.R, Soni (supra) has observed that the impugned addition has been made on the basis of loose sheet and statement of third parties without giving any opportunity of cross-examination to the assessee. Moreover the pass book was neither found with the assessee or with L.T. Shroff during the course of search of premises of L.T. Shroff. A reference to reply dt.

21st Feb., 1997 from Shri K.L. Thakkar HUF has been given in which it was clearly stated that no such amount was found credited as on 10th Feb., 1997 in the name of the assessee. The Tribunal observed that the Revenue has not brought on record any material which suggests that the deposit amount was refunded to the assessee. Looking to the entirety of the facts the Tribunal held that the impugned addition of Rs. 6,85,000 in this case made by the AO merely on suspicion, and that too on the basis of a statement of third party without giving any opportunity of cross-examination, cannot be sustained. The Tribunal, therefore, deleted the said addition in the case of Shri K.R. Soni. He further submitted that the CIT(A) has rightly deleted the addition to the extent of Rs. 20,08,000 and further urged that the addition of Rs. 19 lakhs confirmed by the CIT(A) should also be deleted.

124. The learned Senior Departmental Representative submitted that the notice issued by the Asstt. CIT under Section 131 on 10th Nov., 1997 was only a summon issued to the assessee for making necessary verification. It was not an offer or any inducement to the assessee to surrender the amount mentioned in the said notice under VDIS. The correct figures as per the Bombay diary showing unaccounted deposits of the assessee with L.T. Shroff should be taxed in the hands of the assessee particularly when the assessee had himself accepted that they had unaccounted deposits with the said group. This is further strengthened by the fact that the assessee made disclosure under VDIS soon after receiving the said notice from Asstt. CIT with a view to stop further investigation in this regard. He strongly urged that the order of the CIT(A) deleting the addition of Rs. 20,08,000 should be set aside and that of the AO should be restored. He further urged that the addition of Rs. 19 lakhs confirmed by the CIT(A) does not require any interference.

125. We have carefully considered the submissions made by the learned representatives of the parties. So far as the relief of Rs. 20,08,000 given by the CIT(A) in this regard is concerned, we do not find any justification to interfere with the view taken by the CIT(A), as the amount to that extent had been offered for tax by the assessee under VDIS. The learned CIT(A) has verified the application for VDIS submitted by the assessee and has given a finding that the said application was made in relation to unaccounted deposits made by the assessee with L.T. Shroff. Therefore, the income declared under VDIS had a direct nexus with the deposits in question added by the AO, in the impugned assessment. The CIT(A) has therefore rightly deleted the addition to the extent of Rs. 20,08,000.

126. However, we are not inclined to agree with the view taken by the CIT(A) with regard to confirmation of the addition of Rs. 19 lakhs out of total addition of Rs. 39,08,000 made in relation to unaccounted deposits with L.T. Shroff nor we are inclined to accept assessee's contention for deleting simply because one of the entries of deposits recorded in the Bombay seized diary was inadvertently not included in the list annexed with the notice under Section 131 dt. 10th Nov., 1997 sent by Asstt. CIT or simply because the assessee has not been allowed to cross-examine some persons nor had the opportunity to see the said diary. It would be relevant here to mention that Shri Nimish Patel had accepted in his statement dt. 24th Feb., 1999 that their group viz.

N.K. Group had unaccounted transactions with M/s L.T. Shroff which were declared under VDIS, 1997. The fact of existence of unaccounted transactions with L.T. Shroff had been admitted by him. The AO has given complete details from seized records of L.T. Shroff seized at Bombay and Manekchowk, Ahmedabad at p. 20 of the assessment order.

These details are based on records found and seized during the course of search. It is also true that the AO could not validly place reliance on these details unless copies of statement of Shri K.L. Thakkar, Nimish Patel and copies of contents of relevant seized records are supplied to him and the assessee is provided adequate and reasonable opportunity to cross-examine those persons. We are therefore of the considered opinion that the orders passed by the CIT(A) and the AO in relation to confirmation of the addition to the extent of Rs. 19 lakhs in respect of unaccounted deposits with L.T. Shroff should be set aside and the matter should be restored back to the AO for deciding the question relating to assessability of Rs. 19 lakhs [Rs. 39,09,000 added by the AO relief Rs. 20,08,000 granted by the CIT(A) and confirmed by us] afresh after providing adequate and reasonable opportunity to the assessee. The AO will pass fresh order in accordance with the provisions of law.

127. Ground Nos. 6.1 and 6.2 raised in the assessee's appeal are similar to Ground Nos. 5.1 and 5.2 raised in the case of NKPL. In view of the decision of the Special Bench of Tribunal referred to in earlier part of this order while dealing with the appeal of NKPL, the aforesaid grounds raised in this appeal relating to grant of approval by Jt. CIT without grant of opportunity to the assessee and according it in a mechanical manner, are held to be devoid of any merit and hereby rejected.

128. Ground No. 7 relates to levy of interest under Section 158BFA(1).

No arguments were advanced by the learned representatives of both sides. The AO is directed to grant consequential relief.

129. Ground No. 8 relates to initiation of penalty proceeding under Section 271(1)(c). No appeal is maintainable in relation to penalty in an appeal against the quantum proceedings. Separate appeal is maintainable against penalty order. This ground is, therefore, not entertainable and is accordingly rejected.

130. Now we will deal with the Revenue's appeal in the case of NKIL being IT (SS) A No. 38/Ahd/2002. Ground No. 1 relating to deletion of disallowance of Rs. 1,66,45,228 made by the AO in respect of bogus purchases has already been discussed and decided hereinbefore. This ground raised by the Revenue has been partly allowed.

131. Ground No. 2 relating to deletion of addition of Rs. 6,63,19,496 made in respect of unexpained deposits in the bank accounts of bogus suppliers has already been dealt with and decided while dealing with similar ground raised by the Revenue in the cases of NKPL and Shri Nileshbhai K. Patel. This ground is accordingly rejected.

132. Ground No. 3 relates to deletion of disallowance of Rs. 39,33,252 made out of depreciation. The AO has discussed this point on pp. 16 to 19 of the assessment order The AO has relied upon the statement of Shri Mukesh K. Dave, one of the executives of the company, recorded on 25th Feb., 1999 during the search for arriving at the conclusion that certain assets had not been installed and those assets have been described by the AO as non-performing assets. The AO has reproduced the extract from the statement of Shri M.K. Dave on p. 16 and 17 of the assessment order. The AO has arrived at the conclusion that the assessee has not used these assets as those assets were lying idle due o its non-installation. The disallowance of depreciation was made by the AC in respect of following items of plant and machinery: 133. The learned Senior Departmental Representative contended these items such as expellers mentioned at Sr. Nos. 2, 3 and 4 are extra expellers meant for expansion and cannot be held to be eligible for grant of depreciation on the ground that these were ready for use. The learned senior Departmental Representative relied upon elaborate reasons given in the assessment order and urged that the order of the CIT(A) deleting the disallowance of depreciation should be set aside and that of the AO should be restored.

134. The learned counsel strongly supported the order of the CIT(A). He submitted that the machinery once purchased is merged with the block of assets and thereafter identity of individual asset is lost. The block of assets cannot thereafter be segregated with reference to itemwise claim for depreciation. The CIT(A) after a careful consideration of all the relevant details, material and evidence has come to the conclusion that all these items of machinery were ready for use. The assessee is clearly entitled to grant of depreciation in view of the judgments in the cases reported as CIT v. Geo Tech Construction Corporation (2000) 244 ITR 452 (Ker), Inductotherm (India) Ltd. v. Dy. CIT (20.00) 69 TTJ (And) 753 : (2000) 73 ITD 329 (Ahd), 251 ITR 333 (Guj) (sic), CIT v.Refrigeration & Allied Industries Ltd. (2000) 113 Taxman 103 (Del) and 77 ITD 401 (sic).

135. We have considered the submissions made by the learned representatives of the parties and have perused the orders of the learned Departmental authorities. The Department has not disputed the correctness of the fact of purchase of these assets by the assessee.

According to the assessee, all these items of machinery were ready for use. The reliance placed by the assessee on the statement of Shri M.K.Dave does not in any manner contradict the fact that these so-called non-performing assets were not ready for use. Various judgments relied upon by the learned counsel and the judgments referred to in the said order of the CIT(A) fully support the view taken by the CIT(A). On a careful consideration of the entire relevant facts and various judgments, we are of the view that the CIT(A) has rightly directed the AO to delete the disallowance of depreciation made by him. Hence ground No. 3 of Revenue's appeal is rejected.

136. Ground No. 4 relating to deletion of the addition of Rs. 20,08,000, being the amount of unexplained credit with L.T. Shroff already offered for tax by the assessee under VDIS, has already been discussed and decided. This ground of appeal has no merit and is accordingly rejected.

137. Ground No. 5 relates to deletion of addition of Rs. 3,66,78,297 made on account of unexplained deposits with M/s J.D. Shroff. Fifty per cent addition in respect of deposits with M/s J.D. Shroff has been made in equal proportion in the case of the assessee as well as in the case of M/s K.V. Patel & Co. This issue has been discussed by the AO on pp.

22 to 24 of the assessment order. Search and seizure action under Section 132 was undertaken at the premises of M/s J.D. Shroff and associated concerns. The statement of Shri J.D. Shroff was recorded under Section 131 in which he admitted that the transactions noted in duplicate set of books of account found and seized during the search were unaccounted and were not shown in return of income. The account of NKIL and M/s K.V. Patel & Co. was found in the abovereferred unaccounted books of account of M/s J.D. Shroff and associate concerns.

The AO recorded the statement of Shri Nimish Patel during the search under Section 132(4) on 24th Feb., 1999. Shri Nimish Patel stated that their group concerns M/s K.V. Patel & Co. and NKIL had dealings with M/s J.D. Shroff operating from Ahmedabad since last three years by way of lending and borrowing from time to time by cheques only. The AO asked the assessee to explain the entries found in those seized records of M/s J.D. Shroff during the course of present assessment proceedings.

In reply thereto, the assessee submitted a copy of account of M/s J.D.Shroff as appearing in the books of K.V. Patel & Co. and further stated that the assessee does not know anything about the seized diary of M/s J.D. Shroff. Xerox copy of the diary on which the words "N K" and "K V" have been mentioned does not mean that the amount is in respect of assessee's transactions. It was further stated that nothing was found during the search at the place of the assessee regarding the transactions with M/s J.D. Shroff. In the absence of any material, it cannot be treated as undisclosed income within the purview of block assessment.

138. The AO considered the submissions and gave following finding on p.

25 of the assessment order in the case of NKIL: "The submission of the assessee is carefully considered. There is no substance in the contention of the assessee that these are not related to them. As already discussed J.D. Shroff have admitted that these are unaccounted books and he identified the parties whose names are mentioned in these books. The unaccounted cash deposit as on 31st March, 1996 is Rs. 3,12,21,991 and on 31st March, 1997 is Rs. 4,21,34,604 as per these seized documents. These cash deposits are related to two companies viz. NKIL and K.V. Patel & Co.

Nobifurcation is given in these loose papers, therefore, amount of these cash deposits is equally divided between these two companies.

Therefore, the unaccounted deposit of the assessee-company is determined at Rs. 1,56,10,995 for asst. yr. 1996-97 and Rs. 2,10,67,302 for asst. yr. 1997-98. The interest received by the assessee-company on these deposits is calculated @ 18 per cent upto the date of search.

139. Similar grounds have been raised by the Revenue in their appeal IT (SS) A No. 39/Ahd/2002 in the case of M/s K.V. Patel & Co. which are reproduced below: 1. The learned CIT(A) has erred in law and on facts in deleting the addition of Rs. 3,66,78,297 made on account of unaccounted deposit.

2. The learned CIT(A) has erred in law and on facts in deleting the addition of Rs. 28,09,079 made on account of accrued interest on unaccounted deposits.

140. The AO in the case of M/s K.V. Patel & Co. has made aforesaid additions on similar reasoning as has been done in the case of NKIL.

141. The learned CIT(A) has dealt with this issue in the case of NKIL on pp. 22 to 24 of his order. The CIT(A) after considering the submissions made on behalf of the assessee and also after going through detailed reasons given in the assessment order, observed that the AO has not issued notice under Section 158BD to the assessee after conducting the search at the premises of M/s J.D. Shroff. The exact date of search conducted in the case of J.D. Shroff is also not mentioned. The appellant has denied having received any deposit in cash from M/s J.D. Shroff. The AO has himself mentioned that the amounts mentioned in the seized diary have been received in cash by these assessees in lieu of amounts advanced to M/s J.D. Shroff and associated concerns by cheques. The CIT(A) has also placed reliance on the decision of the Tribunal in ITA No. 881/Ahd/2000 in the case of Shri K.R. Soni (supra) wherein additions made under similar circumstances have been deleted by the Tribunal on the ground that no reliance can be placed on the statement of third parties without providing opportunity for their cross-examination. The CIT(A) deleted the addition of Rs. 3,66,78,297 in both these cases and also deleted the addition made in respect of unaccounted interest on aforesaid deposits.

142. The learned Senior Departmental Representative submitted that the aforesaid additions made on the basis of records seized during the search from the premises of J.D. Shroff comes within the ambit of undisclosed income under Chapter XIV-B in the case of the assessee also. Since the raid under Section 132 had also been conducted in the case of the assessee, the AO could validly rely upon such material found and seized during the search. The learned Senior Departmental Representative submitted that this is one of the reasons recorded in the satisfaction note prepared by the concerned authorities before conducting the search. The addition in question therefore squarely comes within the definition of "undisclosed income" given in Section 158B(b) and 158BB(1) of the Act. The learned Senior Departmental Representative strongly relied upon the reasons mentioned in the assessment order.

143. The learned counsel strongly supported the order of the CIT(A). He submitted that no reliance can be placed on the statement of M/s J.D.Shroff recorded under Section 131 during the course of assessment proceedings in the case of J.D. Shroff without producing him in the assessment proceedings in the case of present assessee and without granting opportunity to the assessee to cross-examine them. Likewise no reliance can be placed on the material found and seized from the premises of M/s J.D. Shroff without supplying the copies thereof and without providing an opportunity to cross-examine the persons concerned from M/s J.D. Shroff and associated concerns. The learned counsel also placed reliance on the judgments reported in Addl CIT v. Miss Lata Mangeshkar (1974) 97 ITR 696 (Bom) and Kishinchand Chellaram v. CIT (1980) 125 ITR 713 (SC). The learned counsel submitted that the AO has made the impugned addition without complying with the provisions of law and basic principles relating to natural justice. The CIT(A) has rightly deleted the said addition. The learned counsel thus strongly supported the order of the CIT(A) in relation to this ground in both these cases.

144. We have considered the submissions made by the learned representatives of the parties. It may be imperative to point out that the Revenue in their appeal IT(SS) A No. 38/Ahd/2002 in the case of NKIL has challenged the only deletion of addition of Rs. 3,66,78,297 made on account of unexplained deposits with L.D. Shroff (the correct name of J.D. Shroff) but has not challenged the deletion of addition of Rs. 1,78,20,544) being interest on the aforesaid amount added by the AO and deleted by the CIT(A). However in the case of M/s K.V. Patel & Co.

the Revenue has challenged the deletion of the addition of Rs. 3,66,78,297 as well as deletion of interest of Rs. 28,09,079 added by the AO on the aforesaid deposits at the rate of 18 per cent upto 31st March, 1997 because that concern had merged with NKIL from 1st April, 1997.

145. The learned Senior Departmental Representative during the course of arguments had also indicated that the information leading to search in the case of the assessee apart from other information also included the information relating to investment of unaccounted cash with L.T.Shroff and J.D. Shroff found as a result of search action under Section 132 against them. Our attention was drawn to the relevant extract in the appraisal report on p. 9 thereof. It has been stated that during the search and seizure action at the premises of J.D. Shroff and L.T.Shroff, duplicate set of books of accounts in both these cases were found and seized. In both these cases it was noticed that these two Shroffs were having huge unaccounted transactions with N.K. Group concerns. In their statements recorded under Section 132(4) and 131(1A), they confirmed huge unaccounted transactions with N.K. Group of concerns. It is, therefore, clear that the addition, if any, is sustainable in relation to entries found in the seized diary and other seized records found and seized from J.D. Shroff and L.T. Shroff Group would come within the ambit of undisclosed income in the block assessment required to be made in the cases of these assessees after the searches were conducted against these assessees also. The mere fact that the AO could initiate action under Section 158BD soon after the searches in the cases of J.D. Shroff and L.T. Shroff, but had not done so, would not disentitle the AO to include such undisclosed income while making assessments under Chapter XIV-B in the cases of these assessees. The undisclosed income found as a result of search, would include within its ambit the undisclosed income found as a result of pre-search, investigation leading to search, material found during the search and post-search investigation made in relation thereto and all that would be assessable in the block assessment. We are therefore of the considered opinion that the undisclosed income, if any, can be determined on the basis of such seized material, it can be validly included in the assessment made under Chapter XIV-B in the cases of these assessees.

146. On merits we find that the AO has not complied with the provisions of law and natural justice in relation to grant of providing adequate opportunity to the assessee with reference to the documents found and seized during the course of search of J.D. Shroff and also with respect to statements of connected persons recorded in the proceedings of J.D.Shroff and associated concerns. The CIT(A) instead of deleting these additions ought to have restored the matter back to the AO with a direction that a copy of statement of J.D. Shroff recorded under Section 131 in the case of M/s J.D. Shroff and associated concerns and copies of relevant seized records should be supplied to the assessee and thereafter these assessees should also be provided an opportunity to cross-examine him. The AO should also find out as to what has finally been decided in the case of J.D. Shroff. The allegation as appearing from the discussion in the assessment orders is that these assessees gave cheques aggregating to Rs. 3,15,15,786 to J.D. Shroff and associated concerns which forms part of regular books of accounts and represent accounted transactions. As against this the diary seized from J.D. Shroff shows that they in turn had paid aggregate cash on various dates to the tune of Rs. 3,12,41,991 to these concerns from time to time and there was a net debit balance outstanding against these two concerns as per the seized diary to the tune of Rs. 2,73,795.

In case the assessee has received cash in the form of unaccounted money from J.D. Shroff, the sources thereof will have to be considered keeping in mind the fact that those have been paid by M/s J.D. Shroff and associated concerns as per alleged entries in the seized diary.

Thereafter the question of income generated from cash money may still remain a subject-matter of consideration. However before arriving at any final conclusion it may be imperative to find out as to what has been finally decided by the IT authorities in the case of J.D. Shroff and associated concerns with reference to contents of the above referred seized documents.

147. On a careful consideration of the entire relevant facts, we are of the view that the point raised in both these appeals by the Revenue, one in the case of NKIL vide Ground No. 5 and the other raised in Revenue's appeal in the case of M/s K.V. Patel & Co. vide ground Nos. 1 and 2 should be restored back to the AO for passing fresh order. The orders of the CIT(A) and the AO in relation to these grounds in both these oases are, therefore, set aside and the matter is restored back to the AO with a direction that he should pass fresh order after providing adequate and reasonable opportunity to the assessee and in accordance with the provisions of law. Hence these grounds raised by the Revenue in these two appeals are treated as allowed for statistical purposes.

148. Ground No. 6 raised by the Revenue in their appeal in the case of NKIL-IT (SS) A No. 38/Ahd/2002-relates to deletion of addition of Rs. 29,56,33,782 made on account of alleged unaccounted sales. The learned Senior Departmental Representative simply relied on the reasons mentioned in the assessment order.

149. The learned counsel appearing on behalf of the assessee strongly supported the order of the CIT(A) and invited our attention to detailed written submissions submitted before the CIT(A). It was pointed out that this addition was made in respect of hypothetical unaccounted production and hypothetical suppressed sales on the basis of certain quantitative statements given to the bank. The learned counsel also drew our attention to letter dt. 12th April, 2001 submitted to the Dy.

CIT in which detailed explanations were given with regard to difference in certain stock statements sent to the bank and as per stock records and other documents found during the search. The learned CIT(A) has discussed this issue in para 12 on pp. 28 to 35 of his order. After elaborate discussion of the entire relevant facts, he has given his findings in para 12.3 and 12.4 which are reproduced below: "12.3 I have considered the submissions made before the AO and those in the above letters, before me, and also the facts stated by the AO in the assessment order. Before me, the appellant's counsel Shri Ashwini Shah and Shri Dhinal Shah, CAs submitted that the figures given to the banks are only for limited purposes for taking other additions etc. whereas actual production figures are reflected in A-97. It is further stated that even if the figures stated in Annex.

A-98 i.e. those given to the banks are adopted, then the AO should also accept the figures of closing stock as per A-98 for both commercial castor oil and caster cake instead of those stated by the appellant in the Annex. A-97. It is stated that, if this is done, the closing stock for commercial caster oil gets reduced by 20487381 kgs. for financial year 1996-97 and 1261907 kgs. for financial year 1997-98 in respect of caster oil. Thus total excess stock shown in the closing stock as per books as compared to those adopted by the AO on the basis of A-98 works out to 21850 MT which at the rate of Rs. 26,5000 per MT as adopted by the AO would work out to Rs. 56,81,00,000, which is much more than the addition made by the AO by relying on the figures of production as per A-98 for earlier months.

Similarly in respect of castor cake it is stated that the total excess stock (vis-a-vis A-98), as declared in the books for the period financial year 1996-97 and 1997-98 works out to 3992 MT which works out to Rs. 59,88,000.

12.4 I have considered the submissions made as above and find that the figures as stated therein are found to be valid having regard to the above factual position, I am inclined to hold that the AO has to adopt a consistent approach in either accepting the entire production records and closing stock as per A-98 or accept the actual records of production and stock as per A-97. The AO cannot pick and choose entries which are suitable for taking additions and ignore those items which would result in loss in closing stock or profits. Keeping in view the argument of the appellant and the fact that the closing stock figures of castor oil and castor cake as discussed above, at the end of the financial year 1996-97 and financial year 1997-98 are much higher than those reflected in Annex. A-98, the additions made of Rs. 29.56 crores cannot be sustained since the corresponding relief would be much more than in respect of lower closing stock adopted on the basis of Annex. A-98 for the relevant periods in respect of castor oil and caster cake are adopted. Accordingly this addition is directed to be deleted." 150. The learned Senior Departmental Representative has not pointed out as to how the order passed by the CIT(A) in relation to this ground suffers from any mistake. He, in fact, could not give any explanation in reply to observations made by the CIT(A) that if the figures reported in the statement submitted to bank are taken into consideration as a whole, the result would be that the closing stock for commercial castor oil gets reduced by 20487381 kgs. for financial year 1996-97 and 1361907 kgs. for financial year 1997-98 in respect of castor oil. Thus the total excess stocks shown in the closing stock as per books as compared to those adopted by the AO on the basis of A-98 works out to 21850 MT which at the rate of Rs. 26,000 per MT as adopted by the AO would work out to Rs. 56,81,00,000 which is much more than the addition made by the AO by relying on the figures of production as per A-98 for earlier months. Similarly in respect of caster cake it is stated that total excess stock as declared in the books for the period financial year 1996-97 and 1997-98 works out to 3392 MT valued at Rs. 59,88,000. The CIT(A) has observed that the AO cannot pick and choose entries from the statements given to the bank, which are suitable for making, additions and ignore those items which would result in lowering closing stock or profits. The Hon'ble Supreme Court in the case reported in Indore Malwa United Mills Ltd. v. State of Madhya Pradesh and Ors. (1966) 60 ITR 41 (SC) relied upon by the learned counsel has held that the AO has to come to definite conclusion or the other in regard to reliability of everyone of the relevant accounts filed by the appellant, and in the absence of any such finding, it was not open to pick and choose some of the registers which were most favourable to the Revenue. In view of elaborate facts and reasons given in the order of the CIT(A), and in view of the further fact that Senior Departmental Representative has not pointed out any mistake whatsoever in the order of the CIT(A) in relation to this ground, we are of the view that the decision of the CIT(A) in relation to this point requires no interference.

151. The last ground in Revenue's appeal in the case of NKIL relates to deletion of addition of Rs. 3,70,78,125 being GP at the rate of 10 per cent approximately, made in respect of alleged sale of 13713 MT of FSG castor oil worth Rs. 37,07,81,250 made out of books by the assessee.

The facts relating to this point have been discussed by the AO in para 10 on pp. 25 to 30 of the assessment order. The CIT(A) has discussed this issue in para 11 on pp. 25 to 28 of his order.

152. The AO has observed that during the search, certain documents were found in respect of loss of stock from the tankers of M/s Naranbhai P.Patel (P) Ltd. (in short M/s NPPL) at Kandla. A survey report on physical verification of the stock of FSG castor oil at Kandla tankers furnished by SGS was found during the search. The survey was conducted by the surveyor at the instance of Bank of Baroda. The AO examined Shri Nimish Patel, chairman and MD of NKIL and also Shri Mesh Patel another director of respondent company. The extracts from their statements have been given on pp. 26 and 27 of the assessment order. Survey under Section 133A was conducted at the office premises of M/s Geochem Laboratories (P) Ltd. Survey report has been reproduced in para 10.2 on p. 28 of the assessment order. A show-cause notice was thereafter issued by the AO to the assessee. The assessee's reply has been reproduced in para 10.3 on p. 29. The reply given by the assessee is reproduced below: "It is stated by you that shortage of stock of 13713 MT valued at Rs. 37.07 crores is bogus and it is stated why such claim should not be disallowed. You have also sought the support from the statement of employees of M/s NPPL, M/s Geochem Laboratory (P) Ltd. and Mahendrabhai N. Patel.

In this connection it may please be noted that the company for the purpose of export, use to store the stock with the tanks owner, NPPL. The stocks were despatched to the tank owner, NPPL at Kandla from time to time. When SGS India Ltd. carried out the physical verification at the instance of the bankers, it was revealed shortage of stock 13713 MT. The company was concerned about the huge shortage and put up the claim with NPPL. The said company did not respond and has given a statement to the Dept. that they have not received any material. The company has no alternative but to file a civil suit against NPPL and debited Rs. 37.07 crores to NPPL a/c and credited to sales a/c. In other words whatever shortage was found is treated as sales and thereby treated as income of the company. Since the company has already treated the shortage as income, the question of treating the same as bogus does not arise." 153. The AO considered the arguments submitted on behalf of the assessee and gave following findings in para 10.6 on p. 30 of the assessment order "10.6 On the basis of discussion made in preceding paras, it is well established that the assessee has made sales of FSG castor oil worth Rs. 37,01,81,250 out of books. Profit earned on this sale is totally unaccounted. In the preceding years, the assessee has shown gross profit @ 10 per cent approx. Profit from the sale of Rs. 37,07,81,250 @ 10 per cent comes at Rs. 3,70,78,125. As this is unaccounted profit of the assessee, amount of Rs. 3,70,78,125 it is considered as undisclosed income of the assessee in the asst. yr.

1998-99 and added in the undisclosed income of the block period." 154. The learned CIT(A) after taking into consideration the entire relevant facts arrived at the conclusion that the sale value of FSG castor oil of Rs. 37,07,81,250 has been mentioned in the sales register and debit entry has been passed in the name of M/s NPPL. This amount is reflected in the P&L a/c and has been included in the figure of total sales of Rs. 1,42,71,73,708 for asst. yr. 1997-98. In view of categorical note mentioned in the auditors report there is no justification for any addition made on account of unaccounted profit in respect of said sale. The CIT(A) accordingly deleted the addition.

155. The learned Senior Departmental Representative drew our attention to an appellate order passed by the appellate authority for industrial and financial reconstruction, New Delhi on 23rd May, 2000 in an appeal against BIFR order dt. 9th July, 1999 in the case of NKIL. The findings given in this appellate order with regard to the alleged shortage of 13713 MT of FSG castor oil worth Rs. 37.08 crores are very vital and relevant for deciding the point in issue. The learned Senior Departmental Representative submitted that the AO has not made addition of Rs. 37.08 crores for which the assessee has issued a bill in the name of M/s NPPL and credited the said amount to sales account with corresponding debit to the account of M/s NPPL with the remarks that recovery is doubtful. The AO has only made an addition of GP at the rate of 10 per cent because the sale bill issued by the assessee against M/s NPPL is false and fabricated as M/s NPPL have denied having received any such goods for storage in their tanks or as the purchases made from NKIL. It is, therefore, clear that the assessee has sold the aforesaid material outside the books of accounts to defraud not only the Department but the bankers from whom finance was obtained on the security of such stocks. The learned Senior Departmental Representative thus strongly urged that the addition made by the AO should be restored.

156. The learned counsel contended that no addition in respect of shortage in stocks found with tank owners can be validly made in the block assessment. The assessee has also accounted for the value of the aforesaid shortage in FSG castor oil in its books of accounts by crediting Rs. 37,07,81,250 in sales account with corresponding debit in the account of M/s NPPL. The auditors have qualified this debit in the account of NPPL as doubtful on account of denial by NPPL about having received any such material, The question as to who is responsible for such shortage is a subject-matter of pending litigation. The assessee has himself determined the value in stock found at market value while accounting for the aforesaid sales in its books of account. Therefore there is no justification for making any further addition at the rate of 10 per cent in the block assessment. This addition clearly falls outside the ambit of block assessment. The learned counsel thus strongly supported the order of the CIT(A).

157. We have considered the submissions made by the learned representatives of the parties and have gone through the relevant documents submitted in the compilation to which our attention has been drawn during the course of hearing. It may be pertinent to reproduce herein the relevant extracts from the order passed by the appellate authority for industrial and financial reconstruction in appeal No.107/99 in the case of the assessee, a copy whereof has been filed by the learned Senior Departmental Representative in their paper book on pp. 32 to 49. The findings given by the appellate authority in the aforesaid order in para 19 in relation to this point are as under: (a) Mahendrakumar N. Patel/NPPIPL provided storage facilities to NKIL for its liquid cargo at Kandla. The transport, filling of tanks and delivery have been arranged by NKIL through its agents/surveyors.

(b) In para 2(iii) of their report on financial year 1998 accounts of NKIL, the statutory auditors have recorded that shortage of 13,713 MT of finished FSG castor oil worth Rs. 37.08 crores (rounded off) was found on the basis of physical verification of stocks conducted by SGS in respect of finished goods storage at Kandla, and NKIL has raised debit note of the said amount on the tank owner NIPPIPL, that the said amount is included in sales and classified as doubtful debts. The statutory auditors have expressed their inability to give opinion on the recoverability of the amount.

(c) NKIL failed to provide any documentary evidence about the transport of the missing oil from NKIL's plant at Kadi to Kandla port. This is evident from NKIL's letter dt. 7th Nov., 1998 to M/s R.C. Shah & Co., CAs.

(d) The missing quantity of castor oil and the value thereof were included in sales by NKIL only after the shortage came to the notice of the bankers following physical verification of stocks. The fact that the amount of Rs. 38 crores is shown as doubtful debtors of less than 6 months is indicative of future plans for writing off the said amount. The prime responsibility for this shortage rests with NKIL/management. Such a large quantity of FSG castor oil (about 1400 truck-tank loads) cannot disappear into thin air. This, in our view, is a case of clandestine sales and siphoning away of sales proceeds and in accounting manipulation after the shortage came to the notice of the creditors. Dr. A.M. Singhvi's argument that entries relating to this letter do not affect the financial picture of NKIL, as presented in its financial year 1998 accounts, is purely technical.

The fact is that the accounting of this missing quantity of castor oil worth Rs. 37.08 crores as sale and the value thereof as doubtful debts (receivables) has within it the seeds of future accounting of a loss of that amount. SICA is not meant for rescuing companies/managements which make valuable assets disappear without corresponding value in cash being brought into the company's accounts." 158. The appellate authority for industrial and financial reconstruction has given very significant finding that NPPIPL have been shown as doubtful debtor of less than six months, which is indicative of future plan for writing of the said amount as bad debt. It has also been observed that this is a case of clandestine sales and siphoning away of sale proceeds and accounting manipulation after the shortage came to the notice of the creditors (banks) etc. The arguments advanced on behalf of the assessee that the entries relating to this matter did not affect financial picture of NKIL, was rejected as being purely technical. It has been observed that the accounting of his missing quantity of oil worth Rs. 37.08 crores as sale and the value thereof as doubtful debt (receivables) has within it the seed of future accounting of a loss of that amount. The IT authorities have to be very particular about the assessee's claim for bad debt in respect of this amount, as and when the said amount is written off as bad debt, in view of aforesaid findings given by the appellate authority in relation to this point. In view of the aforesaid findings given by the appellate authority in relation to this point with which, we fully agree, we are also of the view that this is a case of clandestine sales and siphoning away of sale proceeds of more than 37 crores. The addition of profit on such clandestine sale is liable to be assessed as undisclosed income in the block assessment. It is an undisputed fact that certain documents relating to loss of stock from the tankers of NPPIPL were found during the course of search conducted under Section 132. The conclusion about clandestine sale of such material could be arrived at only as a result of post-search investigation conducted by Dy. DIT/Addl. DIT. The AO gave full opportunity to the assessee in relation to the aforesaid point. The statement of the directors have also been recorded. The profit at the rate of 10 per cent has been taken by the AO on the basis of GP rate of preceding years. The assessee has not given any details of cost of material in question and direct expenses incurred on transportation etc. to show that sale account was credited at market value. Even assuming it was credited at market value, the sale proceeds of material sold in clandestine manner was kept outside the books, as the debit in the account of NPIPL is a bogus debit entry. The income derived on such sale proceeds of more than Rs. 37 crores kept outside the books during block period is likely to be more than 10 per cent for the period covered in the block assessment. We are therefore of the considered opinion that the AO had rightly made the addition of Rs. 3,70,78,125 being 10 per cent profit derived on such clandestine sale of FSG castor oil sold by the assessee outside the books.

159. The Revenue's appeal in the case of M/s K.V. Patel & Co. being IT(SS)A No. 39/Ahd/2002 has already been decided hereinbefore while dealing with the ground No. 5 of Revenue's appeal in the case of NKIL relating to deletion of addition of Rs. 3,66,78,297. The appeal filed by the Revenue stands allowed for statistical purposes.

160. M/s K.V. Patel & Co. has filed a cross-objection which is marked as CO No. 64/Ahd/2002. The assessee has raised the following grounds in the said cross-objection : 1. The block assessment made in void ab initio since status of the assessee mentioned in the notice under Section 158BC is individual whereas the assessee-firm and the notice does not state the block period and therefore, the notice issued is invalid (Monga Metals (P) Ltd. v. CIT 2(a) The order of block assessment is bad in law and illegal inasmuch as the approval of Jt. CIT is granted under Section 158BG without giving any opportunity to the assessee of being heard. The power to grant approval is quasi-judicial and not administrative and therefore; there has to be a judicial approach on entire facts, material and evidence-Kirtilal Kalidas & Co. (supra). The Jt. CIT has a supervisory role and therefore, approval granted is administrative in nature in the normal course but in block assessment in Chapter XIV-B a specific provision is made under Section 158BG for granting approval. It means that the power is quasi-judicial and not of administrative nature.

(b) The appellant says and submits that the approval granted by the Jt. CIT appears to be mechanical without application of mind inasmuch as the approval is granted on 28th Feb., 2001, i.e., date of passing of the order and the date of service of the order.

161. All these grounds are similar in nature as have been raised by NKPL and NKIL in their respective appeals. The assessee has submitted return pursuant to the notice issued under Section 158BC in the correct status. The remaining facts are also similar. All the grounds raised in the cross-objection are devoid of any merit in view of elaborate reasons given while dealing with the similar grounds raised in the appeal of NKPL. The cross-objection submitted by the assessee is accordingly rejected.

162. Now we will deal with the appeal filed by the Revenue in the case of Shri Nileshbhai K. Patel. The ground raised by the Revenue in the said appeal is as under: 1. The learned CIT(A) has erred in law and on facts in deleting the addition of Rs. 37,19,85,062 made on account of unexplained investments.

163. This ground has already been considered and decided while dealing with the similar ground in the cases of NKPL and NKIL. The Revenue's appeal is accordingly dismissed subject to observations made para-100 of this order.

164. Shri Nileshbhai K. Patel has raised the following grounds in CO No. 65/Ahd/2002: 1. The block assessment is void ab initio since the notice issued under Section 158BC does not mention the status of the assessee and does not mention the correct block period and therefore the notice issued is invalid.

2. The block assessment is bad in law inasmuch as nothing the found during search about the deposits in the bank account of the proprietory concerns held as benami and that it does not form part of the block assessment.

3(a) The order of block assessment is bad in law and illegal inasmuch as the approval of Jt. CIT is granted under Section 158BC without giving any opportunity to the assessee of being heard. The power to grant approval is quasi-judicial and not administrative and therefore, there has to be a judicial approach on entire facts, material and evidence [Kirtilal Kalidas & Co. v. Dy. CIT (1999) 64 TTJ (Mad) 77 : (1998) 67 ITD 573 (Mad)]. The Jt. CIT has a supervisory role and therefore, approval granted is administrative in nature in the normal course but in block assessment in Chapter XIV-B a specific provision is made under Section 158BG for granting approval. It means that the power is quasi-judicial and not of administrative nature.

(b) The appellant says and submits that the approval granted by the Jt. CIT appears to be mechanical without application of mind inasmuch as the approval is granted on 28th Feb., 2001 i.e. date of passing of the order and the date of service of the order.

165. Since we have dismissed the Revenue's appeal, all the grounds raised in CO have become infructuous. All such grounds are similar as have been raised by NKPL and NKIL in their appeals. These grounds, therefore, do not have any merit in view of elaborate reason given while dealing with similar grounds in the appeals of NKPL, The cross-appeal submitted by the assessee is accordingly dismissed.

166. Before concluding, we would like to express our feelings of appreciation for admirable representation made by the learned representatives of both sides.

167. In the result, Revenue's appeal in the case of Shri Nileshbhai K.Patel is dismissed and all the appeals filed by the assessee/Revenue are partly allowed for statistical purposes and the cross appeals submitted by the assessee are dismissed.


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