TaxTMI 
TaxTMI 
2008 (2) TMI 513
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.... circumstances of the case as well as on the subject, the learned CIT(A) has erred in confirming the action of the AO in making addition of Rs. 2,21,065 for alleged unaccounted sale of stock found in deficit in course of search by NCB. 2. On the facts and in circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming action of AO in making addition of Rs. 80,64,032 by applying rate at Rs. 800 per kg. for 10,080 kgs. of acetic anhydride for alleged excess consumption. 3. On the facts and in circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming action of the AO in making addition of Rs. 56,000 for alleged bogus purchase." 2. Brief facts of the case are-assessees maintain regular books of accounts which are audited under s. 44AB. Their business comprises of manufacturing dyes intermediates for own and job-work purposes. Search operations were carried out jointly by Central Narcotics Bureau, Gwalior ("CNB" for short) and Narcotic Control Bureau, Ahmedabad ("NCB" for short) in both assessees' premises on 19th Dec., 2000. These operations were carried out on allegations that companies were illegally ....
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.... Why an addition should not be made in your total income by treating 3,938.333 kgs. of acetic and hydrate having been sold illicitly at the prevailing illicit rates." Assessee furnished following detailed reply: "1. The statement given by Mr. Bipinbhai Kamdar, Prop. of M/s Dipali Dye Chem. and Mr. Prakash Manilal Shah, Prop. of Akshay Chemicals that these goods were not purchased by them or that these are only paper adjustments are given under pressure and threat. We are dealing with these parties for a long time. Invoice of previous dealing with the parties (invoice copy with details of payment received against the invoices, all through account payee cheques) is submitted herewith. Not only this, Mr. Pankaj Manilal, Prop. of M/s Monish Commercial in his reply to CBN stated that he has purchased goods from M/s Megatic Intermediates (P) Ltd. and sold the same to M/s Gandhi Enterprises/Patel Traders of Mumbai. When he comes to know at the time of recording of his statement before investigating officer of CBN that M/s Gandhi Enterprise and M/s Patel Traders are not in existence, then he changes his previous stand and stated that he had not purchased any goods for Megatic Intermedia....
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....e is a proper record of stock register and issue slip for raw material issued to plant for manufacture of MG-7. Copies of raw materials issue slip are enclosed herewith. We are also enclosing therewith copy of RG-1 register in which entry of manufactured goods was entered as well as entry of sale is also entered. The copy of invoice for raw material purchase i.e. Aniline Oil, CAN, E.O. and AA and octroi receipts, are also attached herewith. 6. As regards sale of goods to M/s Sai Enterprises, and their non-existence at the given address, we are enclosing 'C' Form of the abovementioned party wherein his address is clearly shown. The CBN officials have made inquiry with another Sai Enterprise and not with the Sai Enterprise to whom we have made sales. Further, CBN have not presented Mr. Shiva D. Shetty Prop. of other Sai Enterprise, before Hon'ble Addl. Sessions Judge, Surat for his deposition before the Court, otherwise this mistake of the Department can be exposed. 7. We are also enclosing herewith copies of sales invoices, copies of accounts of these parties 'C' Forms received by us, order form received by us. finished goods stock register, copy of invoices of raw materials used....
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....en to "NCB" retracting statement and copies of deposition before Sessions Judge, Surat accepting transactions with assessee. AO, however, did not accept explanation of assessee and made addition. 2.4 Aggrieved assessee preferred first appeal where by letter dt. 13th March, 2006 pleaded as under: 1. The statement given by Mr. Bipinbhai Kamdar, Prop. of M/s Dipali Dye Chem. and Mr. Prakash Manilal Shah, Prop. of Akshay Chemicals that these goods were not purchased by them or that these are only paper adjustments are given under pressure or threat. It has been stated that they have dealt(with) these parties for a long time. It was stated that Mr. Pankaj Manilal, Prop. of M/s Monish Commercial in his reply to CBN stated that he has purchased goods from M/s Megatic Intermediates (P) Ltd. and sold the same to M/s Gandhi Enterprises/Patel Traders of Mumbai. When he came to know at the time of recording of his statement before the Investigating Officer of CBN that M/ s Gandhi Enterprise and M/s Patel Traders did not exist, then he changed his previous stand and stated that he had not purchased any goods from Megatic Intermediates/Miraj Organics and did not sale the same to any party. The....
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....nd octroi receipts. 6. As regards sale of goods to M/s Sai Enterprises, and their non-existence at the given address, the assessee stated that it was enclosing "C" Form of the abovementioned party wherein his address in clearly shown. The CBN officials have made inquiry with another Sai Enterprise and not with the Sai Enterprise to whom we have made sales. It was further stated that CBN have not presented Mr. Shiva D. Shetty, Prop. of other Sai Enterprise before Hon'ble Addl. Sessions Judge, Surat for his deposition before the Court, otherwise this mistake of the Department can be exposed. 7. Assessees stated that they were enclosing copies of sales invoices, copies of accounts of these parties, "C" Forms received by them, order form received by them, finished goods stock register, copy of invoices of raw materials used in production of these items, raw materials stock register, issue slip for issue of raw materials to plant etc. 8. It was also stated that they were enclosing xerox copies of deposition of these parties before Hon'ble Sessions Judge, Surat wherein these parties have categorically confirmed that they have purchased the subjected goods from Megatic Intermediates (P....
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....rial issued for manufacturing of dye-intermediate MG-7 is also recorded in RG-23A Register. The entries in this register are supported by issue slips. - Assessee sold goods to parties through M/s Vipul Transport and the proprietor of the said transport concern confirmed that he transported goods upto Bhiwandi. - Assessee produced Shri Bipinbhai Kamdar Prop. of M/s Dipali Dye Chem. before AO along with his submissions. - Shri Bipinbhai Kamdar retracted his statement vide the letter dt. 15th July, 2001 filed before NCB. He also made deposition before Addl. Sessions Court, Surat retracting his statements given before NCB. - The NCB, Ahmedabad is of opinion that no diversion of "AA" has taken place for drug trafficking purpose of Nova group of companies. - Rate of "AA" can be Rs. 800 to Rs. 2,000 per kg. when it is sold for drug trafficking purpose but it is between Rs. 60 to Rs. 100 per kg. when it is sold to other manufacturers. - Assessee also uses other materials for manufacture of dye-intermediates MG-7. The main raw material "AA" commands better price in black market, but not other materials. So all the materials have actually been used for the purpose of manufacturing of d....
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....tting assessees, their directors and associates are as under: "74. As it has come in the evidence of the complainant (PW-1) Shri D. Bhattacharya that as from the documents sent by Shri Kamal Jain, it was learnt that the chemicals are shown to have been purchased from Dipali Dye Chemicals. The statement Exh. 114 of Shri Bipin Kamdar (owner of the Dipali Dye Chemicals) was recorded on 13th July, 2001 under s. 67 of the NDPS Act, wherein Shri Bipin Kamdar is said to have stated that he has not sold any chemicals, but has given only the papers for a consideration of Rs. 2,000 to Rs. 2,500. Shri Bipin Kamdar is also said to have stated in his statement Exh. 114 that the documents about the sale of the chemicals were not supplied by him on 18th Dec., 2000, but the same were supplied by him in the month of February, 2000 and the amount of invoice was also deposited with his account in the month of February, 2001 and, therefore, in the instant Shri Bipin Ratilal Kamdar the owner of Dipali Dye Chemicals is examined at Exh. 186 as PW-12. It has come in his evidence that on 13th July, 2001 when Shri D. Bhattacharya came to record his statement, he has stated that as per the invoice dt. 16th ....
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....e is doing the business with the accused group of companies since 1999. He has further stated that whatever transaction he was by Shri D. Bhattacharya, all the transactions were genuine transactions. ......... 94. The xerox copies of the report of Ahmedabad Zonal Director, NCB dt. 17th Aug., 2001 is placed on record at mark 262/4 on behalf of the defence. Reading the said report between the lines, Zonal Director, NCB, Ahmedabad, after referring his earlier reports dt. 3rd May, 2001; 11th May, 2001; 9th June, 2001; 24th July, 2001 and personal discussion of the. officials concerned at Ahmedabad on 4th Aug., 2001 has stated in para A of his report 'as a result of search on M/s Nova Dyes Stuff Group, Surat, a perusal of the statutory record related the acetic anhydride, quarterly returns filed by them and the secret inquiry conducted in this matter, the undersigned is of the firm opinion that no diversion of acetic anhydride has taken place for drug trafficking purposes. The office of the undersigned does not have any evidence to remotely connect this group with the diversion of acetic anhydride for drug trafficking purposes'. ......... 96. No doubt, in the same report while givin....
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....ilal Shah and Shri Bipin Kamdar were recorded under s. 67 of the NDPS Act. They are said to have stated that they have only supplied the papers and not the material. But, when these witnesses were examined before the Court as PWs-10, 11 and 12, they have given go-bye to the prosecution case and have stated that their statements were recorded under duress and, thus, even the prosecution has failed to prove any unaccounted sale or purchase of finished goods or raw materials and, therefore, considering all the attending circumstances of the case and the evidence as discussed hereinabove, the prosecution having failed to prove the charges leveled against the accused, I answer point Nos. 2 to 6 in negative and hence I pass following order. Order Under s. 235(1) of the Cr.PC, the accused are acquitted from the charges levelld against them for an offence punishable under ss. 26, 28, 29 and 38 r/w s. 9A and 25A of the NDPS Act. After the expiry of appeal period, (1) Muddamal record (if any) seized from the premises of the accused group of companies be returned to the accused. (2) The bail bonds given by the accused shall stand cancelled. Pronounced in open Court today on this 31st day....
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....st of cross-examination by the public prosecutor. These statements, which have stood test of judicial scrutiny, cannot be brushed aside by lower authorities, on assumed belief that they being statements in criminal proceedings, are not binding on IT authorities. These statements are on oath in open Court on the basis of which asses sees have been acquitted of criminal charges, and constitute relevant evidence before IT authorities. In addition, assessees produced all these parties before AO, where also, they confirmed transactions with assessees, this is not controverted by AO. (iv) No flaws have been found in the books of accounts, stock register, delivery slips of the assessee. (v) In totality of circumstances, i.e., confirmations by purchasers, due reflection and maintenance of books of accounts of assessee, confirmations of transporter, asses sees have established their case. Report of Zonal Director of NCB, dt. 17th Aug., 2001 based on statutory record, quarterly returns and inquiries conducted in the matters, a clear opinion has been given that no diversion of "AA" has taken place for trafficking purpose. All these facts clearly show that additions made by lower authorities....